United States Court of Appeals
For the First Circuit
No. 94-1035
NASCO, INC.,
Plaintiff, Appellant,
v.
PUBLIC STORAGE, INC.,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Joseph L. Tauro, U.S. District Judge]
Before
Torruella, Circuit Judge,
Coffin, Senior Circuit Judge,
and Stahl, Circuit Judge.
Joseph G. Abromovitz with whom Marsha A. Morello and Abromovitz &
Leahy, P.C. were on brief for appellant.
John P. Connelly with whom James E. Carroll and Peabody & Arnold
were on brief for appellee.
July 18, 1994
STAHL, Circuit Judge. In this appeal, plaintiff-
appellant NASCO, Inc., challenges the district court's entry
of summary judgment against it and in favor of defendant-
appellee Public Storage, Inc. ("PSI"). NASCO asserts that
the court erred in concluding that a trial was not warranted
on its claims for breach of contract and unfair and deceptive
trade practices. After conducting a careful review of the
record, we agree. We therefore vacate and remand for a trial
on the merits.
I.
BACKGROUND
A. The Facts
In June 1987, NASCO, a closely-held family
corporation which had manufactured and distributed springs
for mattresses and box springs, ceased business operations.
At the time NASCO closed down, it owed Shawmut Bank
approximately $800,000.00. NASCO had been having trouble
servicing its debt to Shawmut and faced foreclosure. Its
only asset of any value was the Chelsea, Massachusetts,
facility from which it had operated its business. This
facility was estimated to be worth approximately
$4,000,000.00.
In early 1988, NASCO retained real estate broker
Peter Cooney of Coldwell Banker to act as its agent in
marketing the Chelsea facility for sale. Soon after the
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property went on the market, agents of PSI approached NASCO
and expressed an interest in purchasing it for use as a self-
storage facility. In April 1988, PSI offered NASCO
approximately $3,800,000.00 for the facility, subject to
certain terms and conditions. Negotiations ensued and
continued for approximately two years. During this period,
Shawmut continually threatened foreclosure, but held off
because of the apparent seriousness of the negotiations
between NASCO and PSI.
Throughout the period of negotiations, other
companies, groups, and individuals expressed interest in
purchasing the property. PSI's interest, however, appeared
significantly more substantial, as PSI representatives (1)
repeatedly assured NASCO that PSI would purchase the property
as soon as it acquired a permit allowing the property to be
used as a self-storage facility; (2) became personally
involved in zoning issues and land court litigation to secure
such a permit;1 and (3) offered to meet with representatives
from Shawmut to demonstrate PSI's good faith and interest in
acquiring the property. NASCO therefore put all of its
energies into finalizing a deal with PSI.
Finally, on January 31, 1990, following a personal
review of the property by certain PSI representatives, PSI
1. Following the land court litigation, the City of Chelsea
granted PSI a use permit on December 28, 1989.
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signed a purchase and sales agreement ("the Agreement") to
buy the property for $3,575,000.00.2 NASCO countersigned
the Agreement on February 2, 1990. One paragraph of this
Agreement, reproduced below, is particularly relevant to this
litigation:
11. Expiration. This Agreement
shall be of no force or effect unless,
within seven (7) days after the date this
Agreement has been executed by Seller and
Buyer's Real Estate Representative, an
Officer, the Secretary or Assistant
Secretary of Buyer, executes this
Agreement on behalf of Buyer and delivers
to Seller an executed copy of this
Agreement signed on behalf of Buyer by
both its Real Estate Representative and
either the Secretary or an Assistant
Secretary of Buyer, together with the
[$20,000.00] Deposit [PSI agreed to
provide upon execution of the Agreement].
Importantly, although a PSI Assistant Secretary
signed the Agreement and thereafter delivered a copy of it to
NASCO, PSI never provided NASCO with the $20,000.00 deposit
referenced in paragraph 11.
Subsequent to the signing of the Agreement, the
following pertinent events took place. On February 12, 1990,
PSI asked NASCO to reactivate electric service to the Chelsea
property. NASCO complied with this request. On February 21,
1990, Thomas Bennett, NASCO's attorney, wrote to David Dunn,
PSI's attorney, and brought to his attention the fact that
2. NASCO reduced the purchase price from $3,800,000.00 to
$3,575,000.00 in order to offset certain expenses incurred by
PSI during the two-year negotiation period.
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PSI had not yet provided NASCO with the $20,000.00 deposit.
When Peter Cooney, NASCO's real estate agent, received a copy
of this letter, he contacted PSI representatives, who assured
him that the transaction remained viable. These same
representatives told him that "the red tape of setting up a
development plan" had occasioned the delay in forwarding the
deposit. Meanwhile, Attorney Dunn responded to Attorney
Bennett's letter by informing him that the deposit "was being
worked" on by PSI. Attorney Dunn did not inform Attorney
Bennett that the deal was off at this time.
On or about February 22, 1990, PSI generated a
mortgage update on the property. On March 2, 1990, PSI
prepared a project analysis for the property. On March 19,
1990, Attorney Dunn wrote to Attorney Bennett and informed
him that PSI had "decided to terminate" the Agreement. On or
about that same date, PSI produced a "Project Abandonment
Authorization" which indicated that the Agreement was
cancelled as of March 19, 1990, and which noted that no PSI
deposits were at risk. Nonetheless, on April 3, 1990, PSI
generated a second project analysis.
On April 13, 1990, Shawmut learned that PSI had
cancelled the Agreement. Soon thereafter, Shawmut sent NASCO
a formal Notice of Intent to Foreclose. On May 23, 1990,
Shawmut held a foreclosure sale and itself purchased the
property for approximately $852,000.00.
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B. Proceedings Below
On November 9, 1992, NASCO filed a two-count
complaint against PSI, alleging that PSI had (1) breached the
Agreement; and (2) engaged in unfair and deceptive trade
practices in violation of Mass. Gen. L. ch. 93A. The
complaint sought more than $8,000,000.00 in damages.
Jurisdiction was premised upon diversity of citizenship.
On October 29, 1993, following the close of
discovery, PSI filed a motion for summary judgment on both
counts of the complaint. With regard to NASCO's breach of
contract claim, PSI argued that, under paragraph 11, its
failure to pay the $20,000.00 deposit within seven days of
signing of the Agreement unambiguously had caused the
Agreement to "expire by its own terms." In the alternative,
PSI asserted that the deposit provision was a condition
precedent, and that its failure to pay the deposit had
prevented the Agreement from coming into existence. With
regard to NASCO's unfair trade practices claim, PSI contended
that its conduct, even if objectionable, would not "raise an
eyebrow of someone inured to the rough and tumble of the
world of commerce," and therefore did not attain "a level of
rascality" which could give rise to liability under ch. 93A.
See Levings v. Forbes & Wallace, Inc., 396 N.E.2d 149, 153
(Mass. App. Ct. 1979) (interpreting reach of ch. 93A, 11,
which governs unfair trade practices claims brought by those
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"engaged in trade or commerce in business transactions with
others similarly engaged").
In response, NASCO argued, inter alia, that
paragraph 11 is ambiguous as to whether PSI's failure to pay
the deposit either caused the Agreement to expire or
constituted a failure to satisfy a condition precedent, and
that extrinsic evidence is admissible to help resolve this
ambiguity. It then contended that the extrinsic evidence in
this case demonstrates that the Agreement did come into
existence and did not expire when PSI did not pay the
deposit. NASCO next maintained that this same evidence
created a triable issue as to whether PSI's conduct was
beyond the toleration of even those persons "inured to the
rough and tumble of the world of commerce," id., and
precluded summary judgment on its ch. 93A claim. Finally,
NASCO asserted that PSI's conduct and its own detrimental
reliance on that conduct gave rise to viable claims of
estoppel and breach of the implied covenant of good faith and
fair dealing, and that these claims, while not explicitly
pleaded in its complaint, were implicit in the allegations
underlying its ch. 93A count.
On December 8, 1993, the district court granted
PSI's summary judgment motion. With respect to NASCO's
breach of contract claim, the court declined to look at
NASCO's extrinsic evidence, reasoning that paragraph 11
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clearly and unambiguously required payment of the deposit by
PSI for the Agreement to have continuing effect.3 With
respect to NASCO's ch. 93A claim, the court stated: "For the
same reasons [that NASCO's breach of contract claim fails],
Count II of the complaint (the 93A claim), which does not
specifically allege any misrepresentations made by PSI, but
merely a failure to comply with the Agreement, is also
without merit." The court did not explicitly respond to
NASCO's contention that its complaint adequately set forth
causes of action for estoppel and breach of the implied
covenant of good faith and fair dealing. This appeal
followed.
II.
DISCUSSION
NASCO's appellate arguments largely mirror the
relevant ones made in its memorandum of law in support of its
opposition to PSI's summary judgment motion.4 NASCO
3. It is not clear from its memorandum of decision whether
the court viewed the Agreement as having never been in effect
or as having expired seven days after its execution.
4. In its brief, NASCO raises for the first time an
alternative argument that the extrinsic evidence proves that,
subsequent to concluding the Agreement, the parties modified
the deposit provision of paragraph 11. Because NASCO never
made this argument to the district court, we will regard it
as waived. See FDIC v. World Univ. Inc., 978 F.2d 10, 13
(1st Cir. 1992) (arguments raised for the first time on
appeal ordinarily are deemed waived). Of course, if it so
desires, NASCO may file a post-remand motion to amend its
complaint so as to state an alternative claim for
modification.
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contends that (1) the district court erred in granting PSI
summary judgment on its breach of contract claim; (2) the
court erred in granting PSI summary judgment on its ch. 93A
claim; and (3) the court erred in overlooking the estoppel
and breach of the implied warranty of good faith and fair
dealing claims that inhered in the allegations in its
complaint. After reciting the summary judgment standard, we
discuss each argument in turn.
A. Summary Judgment Standard
When presented with a motion for summary judgment,
courts should "pierce the boilerplate of the pleadings and
assay the parties' proof in order to determine whether trial
is actually required." Wynne v. Tufts Univ. Sch. of
Medicine, 976 F.2d 791, 794 (1st Cir. 1992), cert. denied,
113 S. Ct. 1845 (1993). A summary judgment motion should be
granted when "the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to
any material fact and that the moving party is entitled to
judgment as a matter of law." Fed. R. Civ. P. 56(c).
"In this context, `genuine' means that the evidence
is such that a reasonable jury could resolve the point in
favor of the nonmoving party," Rodriguez-Pinto v. Tirado-
Delgado, 982 F.2d 34, 38 (1st Cir. 1993) (internal quotation
marks and citations omitted) (emphasis supplied), while
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"material" means that the fact has "the potential to affect
the outcome of the suit under the applicable law," Nereida-
Gonzalez v. Tirado-Delgado, 990 F.2d 701, 703 (1st Cir.
1993). One should note, however, that we always read the
record "in the light most flattering to the nonmovant and
indulg[e] all reasonable inferences in that party's favor."
Maldonado-Denis v. Castillo-Rodriguez, No. 93-2012, slip op.
at 7, (1st Cir. May 6, 1994). Our recitation of the facts in
this case, see supra section I-A, reflects this tenet.
Finally, our review of a summary judgment ruling is
plenary. Garside v. Osco Drug, Inc., 895 F.2d 46, 48 (1st
Cir. 1990).
B. The Breach of Contract Claim
As noted above, the district court granted PSI
summary judgment on NASCO's breach of contract claim. In so
doing, the court declined to consider any evidence beyond the
four corners of the Agreement, ruling that, under "the clear
and unambiguous" provisions of paragraph 11, "PSI's failure
to pay the deposit made the Agreement without force and
effect." NASCO challenges this ruling, arguing that
paragraph 11 is ambiguous on the question of whether PSI's
failure to pay the deposit somehow precluded the Agreement
from taking effect, that extrinsic evidence is admissible to
clarify this ambiguity, and that the extrinsic evidence in
this case creates a triable issue as to whether PSI's failure
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to pay the deposit had any bearing on the Agreement's
efficacy. We are persuaded by NASCO's argument.
Under Massachusetts law, "the question of whether a
contract term is ambiguous is one of law for the judge."
FDIC v. Singh, 977 F.2d 18, 22 (1st Cir. 1992) (citation
omitted). When the judge finds that a contract term is, in
some material respect, uncertain or equivocal in meaning,
then "`all the circumstances of the parties leading to its
execution may be shown for the purpose of elucidating, but
not contradicting or changing its terms.'" Boston Edison Co.
v. F.E.R.C., 856 F.2d 361, 365 (1st Cir. 1988) (applying
Massachusetts law) (quoting Robert Industries, Inc. v.
Spence, 291 N.E.2d 407, 409 (Mass. 1973)); see also
Massachusetts Mun. Wholesale Elec. Co. v. Town of Danvers,
577 N.E.2d 283, 289 (Mass. 1991) (courts consider extrinsic
evidence to discern intent of contracting parties when a
contract term is ambiguous).
As an initial matter, we do not share the district
court's conviction that the intended operation and meaning of
paragraph 11's provisions are clear and unambiguous. On the
one hand, Paragraph 11 is entitled "Expiration." This
suggests that the Agreement would, upon execution, come into
and remain in effect unless and until some specified act or
omission caused it to cease existing. On the other hand, the
text of paragraph 11 states that the Agreement would "be of
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no force or effect unless," within seven days of its signing
by NASCO and PSI's real estate representative, "an Officer,
the Secretary or Assistant Secretary of [PSI] executes this
Agreement . . . and delivers to Seller an executed copy of
this Agreement signed on behalf of Buyer by both its Real
Estate Representative and either the Secretary or an
Assistant Secretary of Buyer, together with the Deposit."
This suggests that the Agreement would not come into effect
at all unless and until some certain condition or conditions
precedent had transpired. Thus, even if PSI is correct in
asserting that the viability of the Agreement depended upon
its payment of the deposit, it is not at all clear whether
the Agreement ever went into effect.5
Of course, if payment of the deposit by PSI were,
under either of PSI's theories, see supra note 5, a
requirement for the Agreement to be in effect beyond the
seven-day window set forth in paragraph 11, then the
ambiguity on the question of whether the Agreement had ever
come into effect would be immaterial. In our view, however,
paragraph 11 does not clearly and unambiguously make payment
of the deposit within the seven-day window such a
requirement. We do think that one plausibly can read
paragraph 11 as mandating that the deposit be delivered
5. PSI's alternative arguments that the Agreement (1)
expired by its own terms; or (2) never came into existence
underscore this point.
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"together with" a copy of the executed Agreement for the
Agreement to be viable. Nonetheless, we think it at least as
plausible to view the delivery of a signed copy of the
Agreement itself as the viability-triggering act, and to
construe the deposit provision as merely confirming an
earlier provision6 which provided that PSI would deliver the
$20,000.00 when it delivered to NASCO a copy of the fully
executed Agreement. Therefore, we are of the opinion that
the deposit provision is ambiguous. See Singh, 977 F.2d at
22 ("[C]ontract language which is susceptible to differing,
but nonetheless plausible constructions is ambiguous.")
(citation and ellipsis omitted). This ruling finds support
in the fact that, under an extremely strict and literal
reading of paragraph 11, PSI's undisputed delivery of a copy
of the fully executed Agreement without the deposit would
have been meaningless.7
6. Paragraph 3 of the Agreement states: "Of the [full
$350,000.00] deposit referenced in paragraph 1.(a) hereof,
$20,000.00 shall be paid upon execution hereof . . . ."
(Emphasis supplied).
7. One should note that PSI does not argue that the deposit
had to be paid at the very same time as its delivery of a
signed copy of the Agreement to NASCO. Instead, PSI contends
that paragraph 11 clearly and unambiguously called for
payment of the deposit at some point within the seven-day
window. A highly-literal reading of paragraph 11 (the only
type of reading that could entitle PSI to summary judgment),
however, cannot support this argument; the Agreement called
for the deposit to be paid "together with" the delivery of an
executed copy of the Agreement.
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Having determined that the relevant provisions of
paragraph 11 are ambiguous, we turn now to the parties'
extrinsic evidence. And, we believe it apparent that this
evidence undermines the district court's ruling that, as a
matter of law, "PSI's failure to pay the Deposit made the
Agreement without force and effect." We think a reasonable
jury could conclude, on the basis of the evidence regarding
the parties' actions subsequent to the February 9, 1990
expiration of the seven-day window provided for in paragraph
11, that the parties did not intend payment of the deposit to
be a sine qua non for the Agreement to be viable beyond this
date. This evidence includes, but is not limited to, (1)
PSI's February 12, 1990 request that NASCO reactivate
electric service to the Chelsea property; (2) PSI's
assurances to NASCO's real estate representative, made in
late February 1990, that the transaction would go through and
that the delay in paying the deposit was due to "the red tape
of setting up a development plan"; (3) PSI's attorney's
representation to NASCO's attorney, made in late February
1990, that the deposit "was being worked on"; and (4) the
mortgage update and project analyses involving the property
prepared by PSI between February 22, 1990 and April 3, 1990.
Accordingly, we vacate the district court's entry
of summary judgment against NASCO on its breach of contract
claim, and remand for a trial on the merits.
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C. The ch. 93A Claim
As noted above, the district court premised its
entry of summary judgment against NASCO on the ch. 93A claim
on its conclusion that PSI did not breach the Agreement.
Because the court erred in reaching this conclusion at the
summary judgment stage, we cannot rely upon its reasoning to
affirm the summary judgment ruling on the ch. 93A claim.
PSI nonetheless argues, as it did before the
district court, that we should affirm the entry of summary
judgment in its favor on NASCO's ch. 93A claim because (1)
the claim is governed by ch. 93A, 11; and (2) ch. 93A, 11
requires that objectionable conduct reach "a level of
rascality" not present here. More particularly, PSI contends
that, in a breach of contract situation, liability does not
attach under ch. 93A, 11 unless a defendant knowingly
breached a contract in order to secure additional benefits to
itself to the detriment of a plaintiff. See Atkinson v.
Rosenthal, 598 N.E.2d 666, 670 (Mass. App. Ct. 1992) ("There
is in those decisions [imposing liability under ch. 93A,
11] a consistent pattern of the use of a breach of contract
as a lever to obtain advantage for the party committing the
breach in relation to the other party; i.e., the breach of
contract has an extortionate quality that gives it the rancid
element of unfairness. In the absence of conduct having that
quality, a failure to perform obligations [under a contract],
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even though deliberate and for reasons of self-interest, does
not present an occasion for invocation of ch. 93A remedies.")
(citation omitted).
The difficulty with PSI's argument is that, even if
we credit all of its premises, we believe that a reasonable
jury could conclude from the evidence in this case that PSI
breached the Agreement in order to obtain for itself
unbargained-for benefits to the detriment of NASCO. Four
facts in particular inform this decision. First, as we
stated in the preceding section of this opinion, a reasonable
jury could find that, irrespective of whether or not PSI paid
the $20,000.00 deposit, the Agreement became viable and
enforceable when PSI's Assistant Secretary signed it and
delivered it to NASCO. Second, a reasonable jury could
conclude that PSI was contractually obligated to hand over
the $20,000.00 deposit at the same time it delivered to NASCO
a copy of the fully executed Agreement. Third, a reasonable
jury could find that NASCO desperately needed the Agreement
to go forward in order to extricate itself from its dire
financial straits. And fourth, a reasonable jury could find
that PSI was fully cognizant of NASCO's desperate financial
situation. On the basis of these facts, and others noted
above, we think that a reasonable jury could infer that PSI
(1) signed the Agreement in order to obligate NASCO to
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deliver the property to it for $3,575,000.00, if PSI so
chose;8 (2) intentionally breached its obligation to pay the
$20,000.00 deposit, knowing full well that NASCO was in no
position to repudiate the Agreement on the basis of PSI's
non-payment of the deposit; (3) used the period of time after
the signing of the Agreement to investigate the property
further and to determine whether it should honor the
Agreement; and (4) then used its wrongful non-payment of the
deposit in order to avoid its obligations under the
Agreement. In other words, we believe that a reasonable jury
could find that PSI manipulated the situation so as to create
for itself, at no cost, both a fully enforceable option to
buy the property and a textual basis for repudiating the
agreement at its discretion. This was more than PSI
bargained for; moreover, it deprived NASCO, at the least, of
$20,000.00 to which NASCO was contractually entitled.9
Accordingly, we vacate the district court's entry
of summary judgment on NASCO's ch. 93A claim, and remand for
a trial on the merits.
8. In so stating, we note paragraph 7(b) of the Agreement:
"If Seller shall fail to consummate this Agreement for any
reason except Buyer's default, Buyer may, in addition to any
other remedy, enforce specific performance of the terms of
this Agreement."
9. Paragraph 7(c) of the Agreement provides: "If Buyer
shall fail to consummate this Agreement for any reason except
Seller's default, then Seller shall be entitled to retain the
deposit paid hereunder . . . ."
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D. The Pleading Issue
D. The Pleading Issue
Finally, NASCO asserts that the district court
erred in failing to infer from the allegations underlying its
ch. 93A claim independent claims of estoppel and breach of
the implied warranty of good faith and fair dealing. The
issue is a close one. On the one hand, it is impossible to
fault the district court for taking NASCO's complaint, which
makes absolutely no mention of either estoppel or any implied
warranties, at face value. On the other hand, we have
construed Fed. R. Civ. P. 8 to allow recovery under an
unpleaded legal theory so long as related legal theories and
essential allegations have been pleaded. See Connecticut
Gen. Life Ins. Co. v. Universal Ins. Co., 838 F.2d 612, 622
(1st Cir. 1988).
It is, however, unnecessary for us to reach this
question at this time. After remand, NASCO will have ample
opportunity to file a Fed. R. Civ. P. 15(a) motion to amend
its complaint so as to state explicitly claims of estoppel
and breach of the implied warranty of good faith and fair
dealing. And, if NASCO is correct in arguing that
allegations already made and evidence already obtained in
this case are sufficient to support these claims, we are
confident that its motion will be granted. See Foman v.
Davis, 371 U.S. 178, 182 (1962) (where there is no compelling
reason for disallowing an amendment, Rule 15(a)'s admonition
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that leave to amend shall be "freely given" is to be heeded).
III.
CONCLUSION
For the reasons stated above, we vacate the
district court's entry of summary judgment in favor of PSI on
NASCO's claims for breach of contract and unfair and
deceptive trade practices, and remand this matter for a trial
on the merits.
Vacated and remanded.
Vacated and remanded
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