United States Court of Appeals
For the First Circuit
No. 05-9012
IN RE: OLYMPIC MILLS CORPORATION, d/b/a/ OLYMPIC GROUP,
and COACHMAN INCORPORATED,
Debtors.
DCC OPERATING, INC.,
Plaintiff, Appellee.
v.
LUIS RIVERA SIACA, ENERY ORTIZ-RIVERA,
and CONJUGAL PARTNERSHIP,
Defendants, Appellants,
v.
WAYNE S. FOREN,
Third-Party Defendant.
OLYMPIC MILLS CORPORATION, d/b/a/ OLYMPIC MILLS GROUP,
and COACHMAN INCORPORATED,
Intervenors.
APPEAL FROM THE BANKRUPTCY APPELLATE PANEL
FOR THE FIRST CIRCUIT
Before
Selya and Howard, Circuit Judges,
and Smith,* District Judge.
*
Of the District of Rhode Island, sitting by designation.
Daniel E. Rosenfeld, with whom Kirkpatrick & Lockhart LLP was
on brief, for appellants.
W. Steven Paleos, with whom Carmen D. Conde, Sarit Zeevi, and
C. Conde & Assoc. were on brief, for appellee.
January 17, 2007
SMITH, District Judge. Defendant-appellant Luis Rivera
Siaca (“Rivera”) appeals a decision of the Bankruptcy Appellate
Panel (“BAP”) subjecting him to over $3 million in liability for
retaining payments in breach of trust. The progenitor of this
procedural gem, plaintiff-appellee DCC Operating, Inc. (“DCC”),
originally brought suit in diversity in the United States District
Court for the District of Puerto Rico. After obtaining a favorable
summary judgment ruling, nondiverse debtors-in-possession Coachman,
Inc. (“Coachman”), and its wholly-owned subsidiary Olympic Mills
Corp. (“Olympic Mills”), intervened, requesting that the case be
referred to the United States Bankruptcy Court for the District of
Puerto Rico. Digesting the issue for several months, the district
court eventually referred the case to the bankruptcy court, which,
over a year later, awarded damages and entered final judgment.
Rivera appealed the unfavorable ruling to the BAP; unsuccessful
there as well, he appealed to us.
Before we reach the merits of this appeal, we must cut
through a factual and procedural knot of Gordian complexity. This
task calls upon us to examine at the outset whether we have
subject-matter jurisdiction or if it was destroyed by the
intervention of nondiverse intervenors; in turn, whether the
intervenors are indispensable; and ultimately, whether remand would
be appropriate to sort all this out. We cut the knot by stepping
forward to address these issues without remand. Once the
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procedural issues are resolved we move to the merits, which by
comparison present a fairly straightforward issue for resolution.
After careful review, we affirm.
I. BACKGROUND
A. The Hampshire Venture.
This contract dispute began with a $2 million bridge loan
essentially to finance the acquisition of sweaters.1 The lender,
Development Capital Ventures, LP (“DCV”), is an investment company
that provides venture capital to small businesses. The borrower,
now-defunct Coachman, was a small business operating in Puerto
Rico. In connection with the bridge loan, which was to be made in
two $1 million installments (one on February 25, 2000, the other on
March 10, 2000), Coachman delivered to DCV a “CONVERTIBLE
SUBORDINATED DEMAND NOTE” (the “Note”) on February 24, 2000. The
Note had a maturity date of June 30, 2000,2 and provided for the
conversion of the principal amount into company stock at DCV’s
option at any time before the balance was paid in full, or
automatically upon the satisfaction of certain conditions.
The Note identified, described, and attached as annexes
four documents that bore upon the bridge loan. Annex A was a term
1
A bridge loan, also known as a swing loan, is a short-term
high-interest loan to finance a discrete, typically time-sensitive,
project or venture.
2
An amendment to the Note extended the maturity date to
January 31, 2001, and increased the principal amount to $2.5
million.
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sheet detailing the conversion of stock; it, along with a guaranty
embodied in annex C, is not involved in this dispute. Annex B was
a document entitled “ASSET PURCHASE AGREEMENT,” which the Note
identified as the “Hampshire Agreement” and defined in ¶ 1.(viii)
as follows:
“Hampshire Agreement” shall mean the
agreement between the Company [Coachman] and
Hampshire Corporation (“Hampshire”) whereby
the Company establishes a subsidiary to
acquire inventory and equipment from Hampshire
and Hampshire guarantees to acquire a minimum
of 12 million sweaters from such subsidiary
over the next five (5) years, or an average
annual purchase of 2.4 million sweater units.
See draft agreement under Annex B.
The draft version of the Hampshire Agreement identified the
“subsidiary” referenced above as Glamourette/OM, Inc.
(“Glamourette”).3 The last document attached to the Note (as annex
D) was a “SUBORDINATION AND STANDBY AGREEMENT” (the “Subordination
Agreement”). According to the terms of the Note, Rivera,
Coachman’s affluent chairman and sometimes lender, was required to
execute the Subordination Agreement as a condition precedent to the
bridge loan.
Rivera executed the Subordination Agreement, along with
the Note (on behalf of Coachman), on February 24, 2000. At that
time, Coachman owed Rivera approximately $5.75 million on past
loans, but neither the Note nor the Subordination Agreement
3
The record reflects that, at some point after January 24,
2000, the entity’s name was changed to Glamourette/OG, Inc.
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identified the particular loans to be subordinated to DCV’s bridge
loan. Almost a year later, Coachman fell into default. DCV’s
corporate general partner, DCC, demanded that Coachman pay its
balance. When Coachman took no action to satisfy its obligations
under the Note, DCC demanded that Rivera pay all amounts due from
payments he had received from Coachman or its affiliates over the
previous year. (Between February 24, 2000, and October 18, 2001,
Rivera made a series of loans to Coachman, Olympic Mills, and
Glamourette totaling $16.6 million, and was repaid at least $5.6
million.) On November 7, 2001, DCC, alleging various state-law
claims under the Subordination Agreement, sued Rivera in diversity
in federal district court. Shortly thereafter, on November 26,
2001, Coachman, Olympic Mills, and Glamourette filed in bankruptcy
court voluntary petitions for relief under Chapter 11.4
B. The Litigation.
Discovery proceeded in district court for almost a year
before DCC and Rivera filed cross-motions for summary judgment.
DCC argued that Rivera violated his trust obligations under the
Subordination Agreement by retaining certain payments from Coachman
or its affiliates. Specifically, DCC contended that, pursuant to
¶ 4 of the Subordination Agreement, Rivera was required to forward
4
The separately-filed bankruptcy petitions were consolidated
within a week. On December 19, 2002, the bankruptcy court granted
Glamourette’s motion for conversion to chapter 7 liquidation;
Coachman and Olympic Mills followed suit on May 4, 2004.
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such payments to DCV for application against the bridge loan.
Rivera responded that the Subordination Agreement covered only
those loans made before January 24, 2000. The disbursements he had
received, Rivera explained, were in payment of loans made after the
execution of the Subordination Agreement. The district court
disagreed and ruled that the Subordination Agreement unambiguously
covered the repayment of all loans, whenever made, until Coachman
satisfied its obligations under the Note. However, the district
court reserved decision on the amount of damages hoping that, in
light of its ruling, the parties would reach an agreement on their
own. The district court entered partial summary judgment on
December 16, 2002.
Nine days later, Rivera moved to dismiss the case for
failure to join Coachman and Olympic Mills. Rivera argued, for the
first time, that these parties were necessary, indispensable, and
(importantly) nondiverse by virtue of their incorporation in
Delaware. (DCC was a Delaware corporation as well.) The next day,
Coachman and Olympic Mills filed in the district court through
special counsel a motion to intervene as of right under Fed. R.
Civ. P. 24(a)(2). Citing DCC’s recent victory, Coachman and
Olympic Mills argued, without actually asserting any claim, that
the payments to Rivera “may be subject to the avoidance powers”
granted to them as debtors-in-possession. Because their interest
in these payments “may preempt” that of DCC, and because “DCC’s
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attempt to collect the funds for its own benefit implicate[s]
numerous core bankruptcy issues,” Coachman and Olympic Mills
requested that the case be referred to the bankruptcy court for
further adjudication. In a text order entered on December 31,
2002, the district court granted the motion to intervene without
discussion (and without addressing Rivera’s motion or soliciting
DCC’s position on either motion), and ordered the parties to appear
at a status conference on January 16, 2003, to address the
intervenors’ referral request. DCC filed a motion opposing
dismissal, intervention, and referral on January 15.
At the status conference, DCC said that it would consent
to referral only if Rivera would deposit over $5 million with the
bankruptcy court. The district court gave Rivera until January 24
to respond, set a briefing schedule on the referral question if
Rivera declined DCC’s offer (which he did), and stated that the
case would proceed to trial on May 27, 2003 if the case were not
referred. Coachman and Olympic Mills submitted a memorandum on
February 24 pursuant to the scheduling order, but, short-circuiting
the process, initiated an adversarial proceeding (No. 03-0042) in
bankruptcy court the very next day. The complaint, filed against
Rivera, DCC, DCV, and others, alleged a variety of claims,
including preferential payments and fraudulent conveyances.
The referral remained under advisement in the district
court for the next two months. With a trial date approaching, the
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district court finally referred the parties’ contract dispute to
the bankruptcy court on May 1, 2003. (Taking care of old business,
the district court also denied as moot Rivera’s January request to
file another indispensability memo.) The case proceeded in
bankruptcy court as a separate adversary proceeding (No. 03-0090),
despite Rivera’s motion in adversary proceeding No. 03-0042 to
consolidate them. DCC moved to dismiss Coachman and Olympic Mills
as intervenors, but the bankruptcy court denied the motion without
discussion in a text order on February 12, 2004. After some
additional discovery, DCC and Rivera filed cross-motions for
summary judgment. Ruling upon the motions in August 2004, the
bankruptcy court, recognizing that the “sole remaining issue” was
the amount of damages DCC should receive, rejected Rivera’s call to
vacate the district court’s previous ruling on liability.5
Calculating the appropriate figure, the bankruptcy court granted
DCC’s motion, denied Rivera’s, and, several days later, entered
final judgment pursuant to Fed. R. Civ. P. 54(b).
Rivera timely appealed to the BAP, which, after a
thorough examination of its authority to review interlocutory
orders of the district court,6 affirmed. Luis Rivera Siaca v. DCC
5
Rivera made the same argument in adversary proceeding No.
03-0042, with the same result.
6
Judge Arthur N. Volotato dissented from the majority’s
decision to review the district court’s interlocutory order
granting partial summary judgment, arguing that, under our opinion
in Brandt v. Wand Partners, 242 F.3d 6, 13-15 (1st Cir. 2001),
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Operating, Inc. (In re Olympic Mills Corp.), 333 B.R. 540 (1st Cir.
B.A.P. 2005). This appeal ensued.
II. DISCUSSION
A. Subject-Matter Jurisdiction.
Before addressing the merits, we must deal with the
procedural tangle and determine if we have jurisdiction, even
though the parties did not originally contest our jurisdiction on
appeal. See Doyle v. Huntress, Inc., 419 F.3d 3, 6 (1st Cir. 2005)
(holding that, even where subject-matter jurisdiction may go
unchallenged on appeal, “we have an obligation to inquire sua
sponte into our jurisdiction over the matter”). Indicating at oral
argument that the integrity of complete diversity in this case was
a matter of primary importance, we permitted the parties to submit
supplemental briefing on whether the intervention of Coachman and
Olympic Mills divested the district court of diversity
jurisdiction. We now conclude that it did not.
1. Complete Diversity. The district courts of the
United States are “courts of limited jurisdiction. They possess
only that power authorized by Constitution and statute.” Kokkonen
v. Guardian Life Ins. Co. Of Am., 511 U.S. 375, 377 (1994). In 28
neither the BAP nor the bankruptcy court possessed the jurisdiction
to do so. We take no position generally on the BAP’s authority to
review interlocutory orders of the district court, but assume, for
the limited purpose of deciding this rather complicated appeal,
that the BAP’s ruling in this respect is appropriate.
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U.S.C. § 1332, the sole basis for jurisdiction in this case,7
Congress bestowed upon the district courts original jurisdiction in
civil actions between citizens of different states. The diversity
requirement of § 1332 must be complete. In cases involving
multiple plaintiffs or defendants, the presence of but one
nondiverse party divests the district court of original
jurisdiction over the entire action. See Strawbridge v. Curtiss,
7 U.S. (3 Cranch) 267, 267 (1806).
The complete-diversity rule is not a constitutional
requirement, see State Farm Fire & Casualty Co. v. Tashire, 386
U.S. 523, 530-31 (1967), or even explicitly required by the
7
DCC’s argument that the district court’s original
jurisdiction continued uninterrupted from diversity of citizenship
to bankruptcy jurisdiction is unsupported and mischaracterizes the
circumstances of this case. The theory appears to rely on the
tortured application of a limited exception to the complete-
diversity rule when a plaintiff joins a nondiverse defendant sued
under federal law with a diverse defendant sued in diversity. See
Romero v. Int’l Terminal Operating Co., 358 U.S. 354, 381 (1959)
(“Since the Jones Act provides an independent basis of federal
jurisdiction over the non-diverse respondent . . . the rule of
Strawbridge v. Curtiss . . . does not require dismissal of the
claims against the diverse respondents.”). The exception
recognizes and attempts to ameliorate the “anomaly that would be
created by ‘not allowing a plaintiff to do in one federal suit what
he would be entitled to do in two separate federal suits.’” Hiram
Walker & Sons, Inc., v. Kirk Line, 877 F.2d 1508, 1512 (11th Cir.
1989) (quoting Baker v. J.C. Penney Co., 496 F. Supp. 922, 924
(N.D. Ga. 1980)). The present case is clearly distinguishable
because, at the commencement of the case, there was no independent
basis of original federal jurisdiction that DCC could have invoked
to bring suit against Coachman or Olympic Mills (nondiverse
parties) on its state-law contract claims under the Subordination
Agreement while, at the same time, bringing suit against Rivera (a
diverse party) in diversity.
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governing statute, see § 1332, but it is nonetheless strictly
construed. Acton Co., Inc. of Mass. v. Bachman Foods, Inc., 668
F.2d 76, 79 (1st Cir. 1982). History is in part responsible both
for the rule’s genesis and its rigid application. The historic
primary function of the diversity requirement was “to provide a
‘neutral’ forum for the out-of-state litigant who fears that the
state court may be unduly, if unconsciously and inarticulately,
solicitous for the interests of its own citizens.” Caso v.
Lafayette Radio Elecs. Corp., 370 F.2d 707, 710 (1st Cir. 1966).
The presence of a nondiverse party eliminates this concern over
litigating in the state court. See Wis. Dept. of Corr. v. Schacht,
524 U.S. 381, 389 (1998).
The rule is most inflexibly applied at the time of
filing, for it has long been settled that “the jurisdiction of the
court depends upon the state of things at the time of the action
brought.” Grupo Dataflux v. Atlas Global Group, L.P., 541 U.S.
567, 570 (2004) (quoting Mollan v. Torrance, 22 U.S. (9 Wheat.)
537, 539 (1824)). The postfiling context is more elastic because,
as a general matter, “if jurisdiction exists at the time an action
is commenced, such jurisdiction may not be divested by subsequent
events.” Freeport-McMoRan, Inc. v. K N Energy, Inc., 498 U.S. 426,
428 (1991) (per curiam) (involving substitution under Fed. R. Civ.
P. 25(c)). There are exceptions, however: the postfiling
introduction of a nondiverse party may, in certain circumstances,
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spoil the jurisdiction that obtained when the suit commenced. For
example, in Am. Fiber & Finishing, Inc. v. Tyco Healthcare Group,
LP, 362 F.3d 136, 139 (1st Cir. 2004), we read Freeport-McMoRan to
apply in the context of postfiling transfers of interest under Rule
25, but not in the postfiling addition of a nondiverse party under
Fed. R. Civ. P. 15(a). See also Casas Office Machs., Inc. v. Mita
Copystar Am., Inc., 42 F.3d 668, 674 (1st Cir. 1994) (substitution
of dispensable nondiverse defendants for fictitious defendants
destroyed diversity jurisdiction). Yet the rule championed in
Freeport-McMoRan is one of general application, as we have
observed. Whether intervention under Rule 24(a) fits this mold is
the question to which we now turn.
We are mindful of our remark, in B. Fernandez & Hnos.,
Inc. v. Kellogg USA, Inc., 440 F.3d 541 (1st Cir. 2006), that the
addition of a nondiverse intervenor as of right divested the
district court of diversity jurisdiction. At the puerile stages of
the litigation in Kellogg, a nondiverse company, Kellogg Caribbean
Services, Inc. (“Kellogg Caribbean”), appealed the district court’s
denial of its motion to intervene as of right as a defendant.
Kellogg Caribbean argued that it, not Kellogg USA, Inc. (“Kellogg
USA” — the original diverse defendant), was the proper defendant to
the litigation because Kellogg USA previously had assigned its
rights and obligations under the disputed contract to Kellogg
Caribbean. We began by framing the inquiry:
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[F]ederal jurisdiction is premised on the
diversity of citizenship between Kellogg USA
(a Michigan company) and [B. Fernandez &
Hnos.] and [Carribean Warehouse Logistics]
(Puerto Rico companies). But, if Kellogg
Caribbean (a Puerto Rico company) is entitled
to intervene as a matter of right under Rule
24(a)(2) and is an indispensable party under
Rule 19(b), the litigation must be dismissed
because there would not be complete diversity.
Kellogg, 440 F.3d at 544. Tackling the intervention issue first,
we concluded that the nondiverse company had satisfied the Rule
24(a)(2) requirements and that the district court had abused its
discretion in denying the motion. Because, as a corollary,
“intervention would destroy complete diversity,” id. at 547, we
then turned to the indispensability analysis mandated by Rule
19(b). The analysis did not get far; observing that the district
court had not independently analyzed the Rule 19(b) question, we
remanded for further findings and an opportunity for the district
court to select the way in which to resolve the problem (i.e.,
dismiss the entire case, retain jurisdiction but limit the relief
available to the nondiverse company, et cetera, see id. at 547-48).
In doing so, however, we suggested strongly that, insofar as
appellees sought an injunction that would affect the assignee’s
interests under the contract, Kellogg Caribbean was an
indispensable party.
In the case under review, the original and amended
complaints alleged only state-law claims, observed that DCC was a
Delaware corporation and Rivera a Puerto Rican resident, and thus
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properly invoked the district court’s diversity jurisdiction.
However, intervenors Coachman and Olympic Mills, were, like DCC,
Delaware corporations, and entered as (nondiverse) party
defendants.8 Because the parties, on appeal at least, do not
assign error to the intervention of Coachman and Olympic Mills per
se, we proceed directly to the Rule 19(b) analysis to determine
whether that intervention divested the district court of subject-
matter jurisdiction. See Kellogg, 440 F.3d at 547; cf. Metro. Life
Ins. Co. v. Ditmore, 729 F.2d 1, 9 (1st Cir. 1984) (holding that a
necessary party under Rule 19(a) would be entitled a priori to
intervene as of right under Rule 24(a)).
2. Indispensability. This task requires us to decide
whether Coachman and Olympic Mills are indispensable; if they are,
the entire case must be dismissed for want of subject-matter
8
Coachman and Olympic Mills appear to have entered the
contract dispute (later adversary proceeding No. 03-0090) as
defendant intervenors, although their alignment is not entirely
clear from the record. We have the authority to determine this
matter for ourselves, see City of Indianapolis v. Chase Nat’l Bank,
314 U.S. 63, 69 (1941) (courts have a “duty” to “look beyond the
pleadings and arrange the parties according to their sides in the
dispute”); Gabriel v. Preble, 396 F.3d 10, 14 (1st Cir. 2005), but
the inquiry is academic: Coachman and Olympic Mills are nondiverse
no matter whom they are aligned against in this case. The
adversary complaint filed on behalf of Coachman and Olympic Mills
in adversary proceeding No. 03-0042 identifies Coachman and Olympic
Mills as Delaware corporations with their principal place of
business in Puerto Rico. Consequently, even if an analysis of the
parties’ actual interests more accurately pitted Coachman and
Olympic Mills against Rivera, and we were to realign the parties
accordingly, citizens of Puerto Rico would then stare at each other
from across the “v.” See § 1332(c)(1).
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jurisdiction. See Provident Tradesmens Bank & Trust v. Patterson,
390 U.S. 102, 116-19 (1968). As we stated in Kellogg, “Rule 19(b)
provides that, if a nonparty is deemed necessary to litigation but
joining that nonparty would deprive the court of jurisdiction, the
court should permit the action to proceed only to the extent that
‘equity and good conscience’ warrant.” Kellogg, 440 F.3d at 547
(quoting Provident Tradesmens Bank & Trust, 390 U.S. at 109). Four
factors guide the inquiry:
[F]irst to what extent a judgment rendered in
the person's absence might be prejudicial to
the person or those already parties; second,
the extent to which, by protective provisions
in the judgment, by the shaping of relief, or
other measures, the prejudice can be lessened
or avoided; third, whether a judgment rendered
in the person's absence will be adequate;
fourth, whether the plaintiff will have an
adequate remedy if the action is dismissed for
nonjoinder.
Fed. R. Civ. P. 19(b). From these factors, the Supreme Court has
identified four corresponding interests: (1) the interest of the
outsider whom it would have been desirable to join; (2) the
defendant's interest in avoiding multiple litigation, inconsistent
relief, or sole responsibility for a liability it shares with
another; (3) the interest of the courts and the public in complete,
consistent, and efficient settlement of controversies; and (4) the
plaintiff's interest in having a forum. H.D. Corp. of P.R. v. Ford
Motor Co., 791 F.2d 987, 992 (1st Cir. 1986) (citing Provident
Tradesmens Bank & Trust, 390 U.S. at 108-11).
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We pause momentarily to address a wrinkle. The above
factors and interests require fact-intensive analysis, “involve the
balancing of competing interest[,] and must be steeped in
‘pragmatic considerations.’” Travelers Indem. Co. v. Dingwell, 884
F.2d 629, 635 (1st Cir. 1989) (quoting Advisory Committee Notes).
For these reasons, the findings and conclusions of a district court
are entitled to deference on appeal, id., and the absence of
independent analysis (or any analysis at all) is a reason for
remand. See Kellogg, 440 F.3d at 548. In the present case, the
district court’s text order granting intervention did not address
the dispensability or indispensability of Coachman and Olympic
Mills, and there is nothing in the record in the five months
separating intervention from referral that sufficiently indicates
what consideration, if any, the district court gave the matter.
Yet in this situation remanding this case to the district court,
which, as we have said, is in the “preferred position” to make Rule
19(b) determinations, Travelers Indem. Co., 884 F.2d at 635, would
be nothing short of Kafkaesque. As the above recitation makes
clear, the travel of this case to date borders on the bizarre, and
we see little wisdom in further complicating it. Here, the BAP did
address the question and concluded that Coachman and Olympic Mills
were not indispensable. Given the procedural tangle described
above, and the impracticality (bordering on absurdity) of remand,
we will proceed to decide the matter without remand under the
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plenary standard normally used in reviewing the legal conclusions
of the BAP. See Carvalho v. Fed. Nat’l Mortgage Assoc. (In re
Carvalho), 335 F.3d 45, 49 (1st Cir. 2003); Takeda v. Nw. Nat’l
Life. Ins. Co., 765 F.2d 815, 818 n.2 (9th Cir. 1985) (“Although in
some cases it might be desirable to remand to allow a district
court to determine whether a nondiverse party is indispensable, we
have the power to decide the joinder issue on appeal.”).
A review of the factors and interests outlined above
leads us inexorably to the conclusion that Coachman and Olympic
Mills are not indispensable.
Rivera’s argument that Coachman and Olympic Mills are
indispensable because they have competing claims over the same res
ignores the posture of this case. First, the causes of action
involved in the district court (later adversary proceeding No. 04-
0090) and the bankruptcy court (adversary proceeding No. 03-0042)
were completely different. In district court, DCC pursued Rivera
in his personal capacity for violating ¶ 4 of the Subordination
Agreement, which required Rivera (1) to hold in trust any cash or
collateral received from Coachman in payment of the principal of
the subordinated debt, and (2) immediately to pay over to DCV the
cash or collateral held in trust for application to the senior debt
until the senior debt was repaid in full. Coachman and Olympic
Mills had no such claim against Rivera (before or after they filed
for bankruptcy), and instead sued him in bankruptcy court in
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adversary proceeding No. 03-0042, alleging fraudulent conveyances
and other related causes of action. See Torcise v. Cmty. Bank of
Homestead (In re Torcise), 116 F.3d 860, 865-66 (11th Cir. 1997)
(secured creditor that initiated separate state-law action against
bank was not indispensable party to adversary proceeding brought by
Chapter 11 debtors’ unsecured creditors committee against bank to
recover fraudulent and preferential payments). Second, and
relatedly, Coachman and Olympic Mills were independently capable of
making a run at Rivera’s money using different means from the point
in time when they filed for Chapter 11 protection, November 26,
2001. Cf. Baker v. Minn. Min. and Mfg. Co., Inc., 99 Fed. Appx.
718, 723-24 (6th Cir. 2004) (partial subrogee not an indispensable
party because it can recover whatever it is owed in a separate
action); Dainippon Screen Mfg. Co. v. CFMT, Inc., 142 F.3d 1266,
1272 (Fed. Cir. 1998) (licencee of patent is not indispensable
because it could cause the patent owner to bring a separate action
for infringement).
Rivera also relies unduly on Coachman’s obligations under
the Subordination Agreement to support his indispensability pitch.
Under the terms of the Subordination Agreement, the subordination
and trust obligations ran from Rivera (the obligor) to DVC (the
obligee). Coachman was a signatory to the Subordination Agreement,
but its participation was perfunctory: Coachman simply promised
that Rivera’s obligations under the Subordination Agreement would
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not impair its obligations under the Note, under which it was the
sole obligor. Even if we were to conclude that Coachman was a co-
obligor under the Subordination Agreement — as opposed to a mere
promissor — it is clear that co-obligors generally are not
indispensable parties in contract disputes that do not involve
reformation, cancellation, rescission, or otherwise challenge the
validity of the contract. See, e.g., Universal Reinsurance Co. v.
St. Paul Fire & Marine Ins. Co., 312 F.3d 82, 87 (2d Cir. 2002)
(joint obligors not indispensable); Janney Montgomery Scott,
Inc. v. Shepard Niles, Inc., 11 F.3d 399, 405 (3d Cir. 1993) (co-
obligor/non-obligee not indispensable); Brackin Tie, Lumber & Chip
Co., Inc. v. McLarty Farms, Inc., 704 F.2d 585, 586-87 (11th Cir.
1983) (co-obligors/non-obligees are not indispensable); Bio-
Analytical Servs., Inc. v. Edgewater Hosp., Inc., 565 F.2d 450,
452-53 (7th Cir. 1977) (guarantor/co-obligor not indispensable);
Trans. Pacific Corp. v. S. Seas Enters., Ltd., 291 F.2d 435, 436
(9th Cir. 1961) (per curiam) (joint obligors not indispensable when
the suit is not for rescission, but for damages for breach of
contract); 7 Charles Alan Wright et al., Federal Practice &
Procedure § 1613, at 177-78 (3d ed. 2001) (“Joint obligors thus
typically are treated as Rule 19(a) parties, but are not deemed
indispensable under Rule 19(b).”); c.f. H.D. Corp. of P.R., 791
F.2d at 993 (nondiverse parent corporation was indispensable
because it was a signatory to the agreements at issue in the
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litigation and plaintiffs’ claims were largely directed against it,
not the diverse defendant subsidiary corporation); Acton Co., Inc.
of Mass., 668 F.2d at 77-78 (nondiverse parent corporation was
indispensable because it was a party to the agreements at issue in
the litigation, played a substantial role in the negotiation of
those agreements, and stood to lose a sizable deposit).
Finally, Rivera’s assertion that DCC sought injunctive
relief against Coachman and Olympic Mills misrepresents the record.
If true, such a request might weigh heavily in favor of
indispensability. See, e.g., Kellogg, 440 F.3d at 548 (stating
that nondiverse intervenor was indispensable insofar as plaintiff
sought an injunction that affected the intervenor’s interests under
the agreements); Acton Co., Inc. of Mass., 668 F.2d at 81-82
(seeking recision of a contract makes all parties to that contract,
and others having a substantial interest in it, indispensable
parties); 7 Charles Alan Wright et al., Federal Practice &
Procedure § 1613, at 196 (3rd ed. 2001) (“[I]n an action seeking
specific performance of a contract all persons who will be required
to act to carry out a court order compelling performance have been
held to be indispensable parties.”). But review of the amended
complaint shows that DCC sought only to prevent Rivera, in his
capacity as chairman and chief executive officer, from directing
Coachman and Olympic Mills to repay his subordinated loans until
DCV’s senior loan was paid in full. DCC sought nothing from
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Coachman or Olympic Mills directly or in any way that would affect
their interest under the Subordination Agreement.
Under these circumstances, where pragmatism strongly
militates against a finding of indispensability and Rivera has not
persuaded us otherwise, the plaint falls far short of the mark.
3. Divestiture. Whether dispensable, nondiverse
defendant-intervenors destroy complete diversity is a question we
have not addressed squarely. An insensitive reading of Kellogg —
but one that would not necessarily be inconsistent with our strict
construction of the complete-diversity rule — would seem to suggest
that nondiverse intervenors are incompatible with the tenets of the
rule. But “[j]udges expect their pronunciamentos to be read in
context,” Wisehart v. Davis, 408 F.3d 321, 326 (7th Cir. 2005), and
the broader context of Kellogg does not support such an absolutist
approach. Kellogg involved a likely indispensable party that, as
assignee under the contract at issue, sought (effectively) to
substitute itself for the diverse defendant by means of
intervention as of right. Intervention was thus the product of the
plaintiff-appellees’ choice to sue the diverse assignor instead of
the nondiverse assignee. This was untenable in Kellogg because a
plaintiff cannot circumvent complete diversity by artful pleading;
otherwise, “a plaintiff could leave non-diverse defendants out of
the original lawsuit and then wait for them to be impleaded or
otherwise joined.” Acton Co., Inc. of Mass., 668 F.2d at 79; see
-22-
also Owen Equip. & Erection Co. v. Kroger, 437 U.S. 365, 374-75,
377 (1978).
The circumstances surrounding the intervention of
Coachman and Olympic Mills in the present case are strikingly
different from those in Kellogg. DCC did not need the
participation of Coachman or Olympic Mills to collect the money
Rivera had retained in breach of the Subordination Agreement. When
Coachman and Olympic Mills eventually sought intervention as of
right, the interests they advanced flowed directly from their
status as debtors-in-possession. Critically, these interests did
not arise until Coachman and Olympic Mills filed for bankruptcy on
November 26, 2001, almost a month after DCC filed suit against
Rivera. See Freeport-McMoRan, Inc., 498 U.S. at 428 (a nondiverse
dispensable party that had no interest in the outcome of the
litigation until sometime after suit was commenced did not defeat
diversity jurisdiction); Aurora Loan Servs., Inc. v. Craddieth, 442
F.3d 1018, 1025 (7th Cir. 2006) (holding that diversity
jurisdiction was not destroyed by the intervention of a nondiverse
party whose claims arose in the course of a foreclosure proceeding
after it obtained the certificate of sale); Salt Lake Tribune
Publ’g Co., LLC v. AT & T Corp., 320 F.3d 1081, 1095-97 (10th Cir.
2003) (similar, but in the context of a disputed option to purchase
the assets of a newspaper operation). There was thus no two-step
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evasion of the diversity requirement here such as was lurking
behind the pleadings in Kellogg.
In similar situations, the weight of authority holds that
claims launched by necessary but dispensable, nondiverse defendant-
intervenors do not defeat the original jurisdiction (diversity)
that obtained at the commencement of the action.9 See, e.g.,
Mattel, Inc. v. Bryant, 446 F.3d 1011, 1013 (9th Cir. 2006) (per
curiam); Aurora, 442 F.3d at 1025-26; Grimes v. Mazda N. Am.
Operations, 355 F.3d 566, 573 (6th Cir. 2004); Viacom Int’l, Inc.,
212 F.3d at 726-28; United Capitol Ins. Co. v. Kapiloff, 155 F.3d
488, 492 (4th Cir. 1998); Dev. Fin. Corp. v. Alpha Hous. & Health
Care, Inc., 54 F.3d 156, 160 (3d Cir. 1995); see also Freeport-
McMoRan, 498 U.S. at 428 (citing Wichita R.R. & Light Co. v. Pub.
Util. Comm’n of Kan., 260 U.S. 48, 54 (1922) (“Jurisdiction once
9
From this perspective, the proper alignment of Coachman and
Olympic Mills becomes more than an academic exercise, see supra
note 8, because the intervention of a nondiverse party as a
plaintiff raises a suspicious judicial eyebrow under § 1332. See,
e.g., Aurora, 442 F.3d at 1025-26; Viacom Int’l, Inc. v. Kearney,
212 F.3d 721, 726-28 (2d Cir. 2000); accord Acton Co., Inc. of
Mass., 668 F.2d at 79. Although this is a close call (perhaps
because it is difficult to quantify and compare the parties’
competing and complex interests), the record does not support
realigning Coachman and Olympic Mills as plaintiff intervenors.
Coachman and Olympic Mills intervened to forestall DCC from
collecting on a favorable judgment it had received just ten days
earlier, and then sued DCC (plus Rivera and others) when the
district court did not immediately refer the case to the bankruptcy
court. Certainly the intervenors had interests adverse to
Rivera’s, but, on balance and in light of the circumstances
surrounding the intervention, DCC was the more antipodean player as
competitor for Rivera’s ill-gotten gains.
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acquired . . . is not divested by a subsequent change in the
citizenship of the parties. Much less is such jurisdiction
defeated by the intervention, by leave of the court, of a party
whose presence is not essential to a decision of the controversy
between the original parties.”)). The present case offends the
complete-diversity rule even less: in adversary proceeding No. 03-
0090 (the case at bar), Coachman and Olympic Mills made no claims
against any party and no party made any claims against them. (This
is not the case, of course, in adversary proceeding No. 03-0042,
which is not before us.)10
Confident in our jurisdiction, we proceed directly to the
merits.
B. The Contract Claims
1. Subordination. The parties dispute the capture of
the term “Subordinated Debt” as defined in ¶ 1.a the Subordination
Agreement. DCC contends, and the lower courts unanimously agreed,
10
In its supplemental brief, DCC suggests that, were we to
hold that intervention had defeated the district court’s
jurisdiction (which we do not), we should exercise our power under
Fed. R. Civ. P. 21 and, to preserve diversity, dismiss the case as
to Coachman and Olympic Mills. See Newman-Green, Inc. v. Alfonzo-
Larrain, 490 U.S. 826, 837 (1989). DCC’s suggestion is puzzling.
Although neither party brought this fact to the Court’s attention,
our independent review of the record reveals that Coachman and
Olympic Mills were to be dismissed from adversary proceeding No.
03-0090 in accordance with a settlement stipulation in adversary
proceeding No. 03-0042. This dismissal alone would have cured any
jurisdictional defect ailing the case up to that point and
invocation of Rule 21 would be superfluous as a result. Cf.
Caterpillar, Inc. v. Lewis, 519 U.S. 61, 65, 68-69 (1996).
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that the plain language in the Subordination Agreement subordinates
all of Rivera’s loans to Coachman and its affiliates, irrespective
of the time they were made. Rivera disputes this conclusion and
argues that the plain language subordinates only loans made before
the execution of the Subordination Agreement or, in the
alternative, that the language is ambiguous and should thus be
construed against its drafter, DCC. This distinction is critical
because Rivera submits that the contested payments apply only to
his loans that post-date the Subordination Agreement, not his
previous loans that, under the Subordination Agreement, constitute
subordinated debt.
The parties identify two provisions in the Subordination
Agreement as evidence tending to support their respective
positions. The first is defining “Subordinated Debt,” provided
below in full:
“Subordinated Debt” shall mean all
principal, interest, fees, costs, enforcement
expenses (including legal fees and
disbursements), collateral protection expenses
and other reimbursement and indemnity
obligations that the Subordinating Creditor
[Rivera] has loaned to the Borrower [Coachman]
or any of its affiliates.
The second details “Subordination,” and reads in pertinent part:
7. Subordination. The Senior Debt [DCV’s
$2 million bridge loan] and the Note and any
and all other documents and instruments
evidencing or creating the Senior Debt and all
guaranties, mortgages, security agreements,
pledges and other collateral guarantying or
securing the Senior Debt or any part thereof
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shall be senior to the Subordinated Debt
irrespective of the time of the execution,
delivery or issuance of any thereof.
Both DCC and Rivera agree (ignoring Rivera’s alternate argument for
the moment) that these provisions are unambiguous, but in opposite
ways. Displaying its conjugative prowess, DCC argues that “shall
mean” indicates “the future progressive tense and, as the main verb
phrase in this definitional section, use of the those words require
that the entire definition is to be read at the time the
[Subordination Agreement] is being enforced, not the time at which
it was executed.” Not to be syntactically outplayed, Rivera
responds that “has loaned” can only refer to loans outstanding as
of the date of the Subordination Agreement, and cannot possibly
encompass loans made after that date. The grammatical acrobatics
continue with competing interpretations of the “Subordination”
clause, specifically with respect to the following language:
“irrespective of the time of the execution, delivery or issuance of
any thereof.” DCC posits that this language modifies “Subordinated
Debt,” which is the closest noun; Rivera argues that it modifies
“Senior Debt,” which is the direct object of “shall be senior.”
DCC also invokes two provisions in the Note to support
its interpretation of the Subordination Agreement. The first is
the Note’s definition of the Subordination Agreement, which is
attached to the Note as an annex, provided in ¶ 1.(xiv):
“Subordination and Standby Agreement”
shall mean the agreement (Annex D) by Mr. Luis
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Rivera to subordinate and defer repayment of
the principal of any loan by him to the
Company [Coachman], Olympic Mills Corp.,
Olympic Group, Inc. or the new entity pursuant
to the Hampshire Agreement until this Note is
converted and repaid.
The second, a condition precedent to DCV’s loan under the Note, is
provided in ¶ 5.1:
Subordination and Standby Agreement. Mr
Luis Rivera Siaca shall execute an irrevokable
Subordination and Standby Agreement, in the
form attached here to as Annex D, whereby his
loans to the Company [Coachman] or its
affiliates are subordinated to this Note and
he agrees to defer payment of principal on
such loans until this Note is either converted
into Series E preferred Stock or is repaid.
Using this language, and corresponding language in the
Subordination Agreement that it claims expressly incorporates the
Note by reference (i.e., the recital that identifies the execution
of the Subordination Agreement as a “condition precedent to the
Lender’s [DCV] willingness to make a loan to the Borrower
[Coachman] pursuant to the Note”), DCC argues that the
“Subordinated Debt” unambiguously applies to all of Rivera’s loans
to Coachman and its affiliates. Rivera concedes that the
Subordination Agreement “refers to and describes the Note,” but
denies that it incorporates the Note by reference. Also, Rivera
argues that the Note is “outside the four corners” of the
Subordination Agreement, and, for the purposes of deciding their
contract dispute, constitutes extrinsic evidence.
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We review de novo the decisions of the district court
(liability) and the bankruptcy court (damages) granting summary
judgment, and owe no particular deference to the conclusions of the
BAP. See Razzaboni v. Schifano (In re Schifano), 378 F.3d 60, 66
(1st Cir. 2004). We also review de novo questions of contractual
interpretation, unless disputed and genuine issues of material fact
(over extrinsic evidence, for example) bear upon the interpretation
of ambiguous language. See Liberty Mut. Ins. Co. v. Greenwich Ins.
Co., 417 F.3d 193, 197 (1st Cir. 2005).
It is undisputed that, pursuant to ¶ 12 of the
Subordination Agreement (and ¶ 16 of the Note), Delaware provides
the governing substantive law. Under Delaware law, “[t]he basic
rule of contract construction gives priority to the intention of
the parties.” E.I. du Pont de Nemours & Co. v. Shell Oil Co., 498
A.2d 1108, 1113 (Del. 1985). “In upholding the intentions of the
parties, a court must construe the agreement as a whole, giving
effect to all provisions therein.” Id. “Moreover, the meaning
which arises from a particular portion of an agreement cannot
control the meaning of the entire agreement where such inference
runs counter to the agreement’s overall scheme or plan.” Id.
“Where the contract language is clear and unambiguous, the parties’
intent is ascertained by giving the language its ordinary and usual
meaning.” Nw. Nat’l Ins. Co. v. Esmark, Inc., 672 A.2d 41, 43
(Del. 1996). “Courts consider extrinsic evidence to interpret the
-29-
agreement only if there is an ambiguity in the contract.” Id. “A
contract is not rendered ambiguous simply because the parties do
not agree upon its proper construction. Rather, a contract is
ambiguous only when the provisions in controversy are reasonably or
fairly susceptible of different interpretations.” Rhone-Poulenc
Basic Chems. Co. v. Am. Motorists Ins. Co., 616 A.2d 1192, 1196
(Del. 1992).
To our knowledge, the Delaware Supreme Court has not yet
had occasion to apply, as we have, the long-recognized principle
that,
in the absence of anything to indicate a
contrary intention, instruments executed at
the same time, by the same contracting
parties, for the same purpose, and in the
course of the same transaction will be
considered and construed together as one
contract or instrument, even though they do
not in terms refer to each other.11
11 Richard A. Lord, Williston on Contracts § 30:26 at 239-42 (4th
ed. 1999) (citing Bailey v. Hannibal & St. Joseph R.R. Co., 84
11
This principle is associated with but distinct from a
court’s consideration of a separate writing expressly incorporated
by reference — something the Delaware Supreme Court has recognized
(but with material limitations) and what DCC argues should permit
this court to read the Subordination Agreement along side the Note.
Compare 11 Williston on Contracts § 30:25 (“Writing Expressly
Incorporated By Reference”), with id. § 30:26 (“Writing Implicitly
Incorporated By Reference”); see Delaware v. Black, 83 A.2d 678,
681 (Del. 1951) (holding that a contract may incorporate by
reference provisions in another instrument but only to the extent
that the incorporated matter is specifically set forth or
identified); see also Realty Growth Investors v. Council of Unit
Owners, 453 A.2d 450, 454 (Del. 1982) (similar); Pauley Petroleum,
Inc. v. Cont’l Oil Co., 231 A.2d 450, 456 (Del. Ch. 1967) (same).
-30-
U.S. 96 (1872)); see Crowe v. Bolduc, 365 F.3d 86, 95-97 (1st Cir.
2004) (using other documents in same transaction to find that
contract was not ambiguous under Maine law); Crowe v. Bolduc, 334
F.3d 124, 137 (1st Cir. 2003) (using principle to find contract
ambiguous under Maine law); cf. Senior v. NSTAR Elec. & Gas Corp.,
449 F.3d 206, 219 (1st Cir. 2006) (using principle to construe an
ambiguous collective bargaining agreement). We think it fair to
predict that, were the Delaware Supreme Court presented with this
question, it would read the disputed language of the Subordination
Agreement in light of the pertinent provisions of the Note.12 Both
contracts were signed on the same day (February 24, 2000) between
substantially the same parties (Rivera signed the Note as
Coachman’s chairman) as facets of the same transaction (the
12
We observe that Delaware’s Chancery courts, in the
figurative trenches of contract interpretation, have recognized and
applied this precept in making ambiguity determinations. Gildor v.
Optical Solutions, Inc., No. 1416-N, 2006 WL 1596678 at *6 n.16
(Del. Ch. June 5, 2006) (Strine, V.C.) (unpublished); Simon v. The
Navellier Series Fund., No. 17734, 2000 WL 1597890 at *7 & n.33
(Del. Ch. Oct. 19, 2000) (Strine, V.C.) (unpublished); Crown Books
Corp. v. Bookstop, Inc., No. 11255, 1990 WL 26166 at *6 (Del. Ch.
Feb. 28, 1990) (Allen, C.J.) (unpublished). The lower federal
courts in Delaware have recognized this principle as well. See
Magten Asset Mgmt. Corp. & Law Debenture Trust Co. of N.Y. v. Nw.
Corp. (In re Nw. Corp.), 313 B.R. 595, 601 (Bankr. D. Del. 2004)
(“Under Delaware law, all related documents and instruments in a
single transaction together are harmonized to the extent
possible.”); Huyler’s v. Ritz-Carlton Rest. & Hotel Co. of Atlantic
City, 1 F.2d 491, 492 (D. Del. 1924) ( “It is true that the
principle by which instruments executed at the same time, by the
same parties, for the same purpose, and in the course of the same
transaction are considered as one, and receive the same
construction as if embodied in one instrument, is of wide
application and the illustrative cases are many.”).
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infusion of capital into the Coachman enterprise) for a unitary
purpose (to fund the acquisition of sweaters). As further evidence
of symbiosis, the execution of the Subordination Agreement was
listed as a condition precedent to the Note, and the document was
physically attached to the Note as an annex. Also, neither
document contains a merger clause or any indication of the parties’
intent to read each contract in isolation.
The language of the Subordination Agreement quickly comes
into focus when viewed through the lens of the Note. The most
obvious blow to Rivera’s interpretation of the Subordination
Agreement is the Note’s use of “any loan” in ¶ 1.(xiv), without any
accompanying prospective limitation. In fact, subsequent language
in ¶ 1.(xiv) shows that such a limitation could not have been
intended. In pertinent part, ¶ 1.(xiv) explains that the
Subordination Agreement would require Rivera “to subordinate and
defer repayment of the principal of any loan by him to the Company
[Coachman], Olympic Mills Corp., Olympic Group, Inc. or the new
entity pursuant to the Hampshire Agreement until this Note is
converted and repaid.” (Emphasis supplied.) However, prior to
February 24, 2000, Rivera had extended loans to Coachman and
Olympic Mills only; he did not extend any loans to the “new entity”
(a/k/a/ Glamourette) until afterwards. (It is unclear even whether
Glamourette existed on the date of the signing.) Further, ¶ 5.1
provides that DCV’s loan would issue only if Rivera would agree
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that “his loans to the Company [Coachman] or its affiliates [not
simply “and its affiliate Olympic Mills”] are subordinated to this
Note.” (Emphasis supplied.) The Subordination Agreement uses
similarly broad language in ¶ 1.(xiv): “the Subordinating Creditor
[Rivera] has loaned to the Borrower [Coachman] or any of its
affiliates.” (Emphasis supplied.)
We are unwilling to endorse, as Rivera would have us do,
an interpretation of “has loaned” that would render the above
language meaningless or superfluous, see Crowe, 365 F.3d at 97, and
that would run counter to the overall scheme that these documents
were designed to effect.13 See E.I. du Pont de Nemours, 498 A.2d
at 1113. Because the disputed language is not reasonably
susceptible of different interpretations, see Rhone-Poulenc, 616
A.2d at 1195, we hold that the Subordination Agreement, when
properly read in conjunction with the Note, unambiguously covers
the post-Subordination Agreement loans at issue in this case.14 We
13
Rivera’s argument that the phrase “pursuant to the Hampshire
Agreement” in ¶ 1.(xiv) of the Note limits subordination to
“specific indebtedness” lacks merit. As an initial matter, it is
debatable whether this language imports a subject-matter restraint
on the Subordination Agreement or simply associates the “new
entity” with the Hampshire venture. But even giving Rivera the
benefit of the doubt, he admits that the loans that post-date the
Subordination Agreement were to provide additional capital for the
acquisition of Hampshire assets, presumably after the depletion of
DCV’s loan.
14
We reach this conclusion in spite of DCC’s assertion that
“shall mean,” as it is used to define “Subordinated Debt” in ¶ 1.b
of the Subordination Agreement, independently denotes the very
specific intention that DCC assigns to it (without any further
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are therefore not required (or permitted), under Delaware law, to
consider evidence extrinsic to these documents. See Eagle Indus.,
Inc. v. DeVilbiss Health Care, Inc., 702 A.2d 1228, 1232 (Del.
1997).15
2. Equitable Estoppel. In a last-ditch attempt to
avert liability, Rivera contends that the doctrine of equitable
estoppel precludes DCC from enforcing the Subordination Agreement.
Specifically, Rivera argues that president of DCC and then Coachman
director Wayne Foren “expressly consented to or knowingly
acquiesced in” the repayment of Rivera’s loans.16 To support his
argument, Rivera touts (1) an April 14, 2000 letter in which Foren
proposed that Rivera provide a $3 million short-term credit line
that would be exempt from the Subordination Agreement, and (2) the
indication here that “shall mean” bears on the question presented).
Such language is common in defining contractual terms, as
exemplified by the very contracts in this case: both defined terms
in the Subordination Agreement (“Senior Debt” is the other, in ¶
1.a), and all fourteen in the Note, employ “shall mean” to convey
the terms’ intended meaning.
15
We need not, and therefore do not, address the parties’
competing interpretations of the “Subordination” clause in ¶ 7 of
the Subordination Agreement. Assuming without deciding that
“irrespective of the time of the execution, delivery or issuance of
any thereof” modifies the term “Senior Debt,” this interpretation
is not at all inconsistent with our holding with respect to the
definition of “Subordinated Debt” in ¶ 1.b and the related
provisions in the Note.
16
Foren was elected to Coachman’s board of directors as a
condition precedent to the bridge loan, pursuant to ¶ 5.3 of the
Note. Although his term in office was to continue “as long as any
amount is outstanding” under the Note, Foren resigned in February
2001 when Coachman defaulted.
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December 12, 2000 board minutes that do not indicate whether Foren
objected to the prospect that Coachman would use proceeds from the
Puerto Rico Industrial Incentive Fund to repay Rivera’s $4 million
loan that pre-dated the Subordination Agreement. Ignoring the fact
that Rivera did not present the April 14 letter to the district
court in his opposition to DCC’s summary judgment motion, the
dispositive flaw in this evidence is that it fails to show how
Rivera was induced to rely — let alone detrimentally — on Foren’s
conduct. See VonFeldt v. Stifel Financial Corp., 714 A.2d 79, 87
(Del. 1998) (requiring a showing of detrimental reliance to support
a claim of equitable estoppel). Without more, we are bound to
reject this argument.
3. Damages. Rivera’s contention that the bankruptcy
court’s award does not accurately reflect expectation damages, see
Duncan v. Theratx, Inc., 775 A.2d 1019, 1022 (Del. 2001) (requiring
the breaching promisor to compensate the promisee for the
promisee’s reasonable expectation of the value of the breached
contract), is waived on at least two grounds. First, as presented
to the district court (and later reiterated to the bankruptcy
court), the argument was fatally undeveloped, comprising only four
sentences, a citation to a district court opinion, and no analysis
whatsoever. See McCoy v. Mass. Inst. of Tech., 950 F.2d 13, 22
(1st Cir. 1991) (“theories not raised squarely in the district
court cannot be surfaced for the first time on appeal”). Second,
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as presented to us, the argument impermissibly depends on an
entirely new factual predicate: that “Olympic and Glamourette had
many other creditors besides Rivera Siaca to whom money was owned
and who could have been paid without violating the Subordination
Agreement.” See Cochran v. Quest Software, Inc., 328 F.3d 1, 11
(1st Cir. 2003) (“a party may not advance for the first time on
appeal either a new argument or an old argument that depends on a
new factual predicate”). For these reasons, we decline to
entertain it.
III. CONCLUSION
To sum up, we hold first that the intervention of
nondiverse Coachman and Olympic Mills has not destroyed diversity
jurisdiction, and that we have jurisdiction to decide the merits of
this appeal as a result; second, that the Subordination Agreement,
when properly read in tandem with the Note, unambiguously governs
the loans disputed in this case; and third, that Rivera’s remaining
arguments are either without merit (equitable estoppel) or waived
(damages). The judgment of the BAP is therefore
Affirmed.
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Siaca v. DCC Operating, Inc.
Court: Court of Appeals for the First Circuit
Date filed: 2007-01-17
Citations: 477 F.3d 1, 357 B.R. 1
Copy Citations