UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
No. 95-1729
FEDERAL DEPOSIT INSURANCE CORPORATION,
AS LIQUIDATING AGENT OF FIRST MUTUAL BANK FOR SAVINGS,
Plaintiff, Appellee,
v.
ELDER CARE SERVICES, INC. and
FRANK C. ROMANO, JR.,
Defendants, Appellants.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Nancy Gertner, U.S. District Judge]
Before
Selya, Boudin and Lynch,
Circuit Judges.
William T. Harrod III with whom Harrod Law Offices was on briefs
for appellants.
Daniel H. Kurtenbach, Counsel, with whom Ann S. Duross, Assistant
General Counsel, and Richard J. Osterman, Jr., Senior Counsel, were on
brief for appellee.
April 24, 1996
BOUDIN, Circuit Judge. In January 1987, Brandon Woods
of Glen Ellyn, Inc., a wholly owned subsidiary of Elder Care,
Inc., borrowed $10.1 million from First Mutual Bank for
Savings located in Boston. The purpose was to finance the
purchase by Brandon Woods of the site of a former seminary in
Glen Ellyn, Illinois, and the development of the property
into a retirement community. In due course the property was
acquired by Brandon Woods for $4.5 million.
The bank loan was secured by a mortgage on the seminary
property and by two guaranties from third parties in favor of
the bank--one from Elder Care, Inc., and the other from its
president Frank Romano in his personal capacity. Both
guarantees contained broad waiver provisions, including
waivers of any requirements of "diligence or promptness" and
(to the extent permitted by law) waivers of "any defense of
any kind." The guaranties provided that they were governed
by Massachusetts law.
The loan was to be repaid by January 30, 1988, a date
later extended to October 28, 1988, but Brandon Woods
defaulted. After a delay to allow Brandon Woods time to
refinance (which it failed to do), the bank on June 27, 1989
brought a foreclosure action against Brandon Woods in an
Illinois state court. On December 26, 1990, the court
entered a foreclosure judgment, fixing the amount then owed
at just over $12.8 million, including the unpaid balance,
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interest and attorney's fees. The court ordered that the
property be sold on February 5, 1991.
On February 5, 1991, Brandon Woods filed a voluntary
bankruptcy petition, blocking the sale of the property under
the automatic stay provision of the Bankruptcy Code. 11
U.S.C. 362(a)(1). On April 8, 1991, the bankruptcy court
denied the bank's motion to lift the stay, finding that the
property if fully developed would be worth about $13 million,
just exceeding the amount then claimed by the bank. In
August 1991, the bankruptcy court granted a renewed motion to
lift the stay after Brandon Woods failed to gain additional
financing. On November 23, 1993, after an unexplained two-
year delay, the seminary property was sold at a foreclosure
sale for $300,000, all of which went to satisfy a
construction firm's prior lien.
In the meantime, on May 24, 1991, the bank filed the
present action in Massachusetts state court against the two
guarantors. A month later the bank failed and the Federal
Deposit Insurance Corporation ("FDIC") was appointed
liquidating agent. The FDIC then removed the case to federal
court. In April 1993, the district court granted summary
judgment in favor of the FDIC as to liability.
In May 1994, the present case was reassigned to a new
district judge. On June 8, 1995, the district court granted
the FDIC's motion for summary judgment as to damages, and on
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August 4, awarded the FDIC $15,316,887.33. This represented
the then-outstanding balance claimed by the FDIC of
$16,416,719.31 (for principal, plus interest and attorney's
fees) less specific maintenance expenses incurred by Brandon
Woods, claimed by it as an offset, and conceded by the FDIC.
The two guarantors now appeal, claiming that there was a
material issue of fact precluding summary judgment.
In substance, the guarantors say that there is a gross
disparity between estimates of the property's value--notably
the $13 million estimate made by the bankruptcy court--and
the $300,000 sale price obtained at the foreclosure sale. In
the guarantors' view, this discrepancy--coupled with the
unexplained two-year delay in the sale--gives rise to a
factual dispute about whether the FDIC acted in good faith in
liquidating the security. Bad faith or fraud, the guarantors
argue, would bar or diminish the FDIC's recovery.
Massachusetts law does permit a guarantor to waive
defenses, see Shawmut Bank, N.A. v. Wayman, 606 N.E.2d 925,
927 (Mass. App. Ct. 1993), but probably such a waiver could
not immunize bad faith or fraud. See Pemstein v. Stimson,
630 N.E.2d 608, 612 (Mass. App. Ct.), rev. denied, 636 N.E.2d
279 (Mass. 1994). For present purposes, we follow the
district court in assuming arguendo that a showing of bad
faith or fraud could be used to lessen or prevent recovery;
the FDIC asserts the contrary but offers no case directly on
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point. Still, reviewing the matter de novo, Brown v. Hearst
Corp., 54 F.3d 21, 24 (1st Cir. 1995), we agree with the
district court that there is no genuine issue of material
fact to preclude summary judgment.
Determining whether there is a genuine issue ordinarily
involves two different dimensions: burden of proof and
quantum. The burden of proof on the issue at trial is
relevant because, if a party resists summary judgment by
pointing to a factual dispute on which it bears the burden at
trial, that party must point to evidence affirmatively
tending to prove the fact in its favor. Celotex Corp. v.
Catrett, 477 U.S. 317, 322-23 (1986). Here, at trial bad
faith or fraud would be an affirmative defense to be proved
by the guarantors. See Shawmut, 606 N.E.2d at 928.1
The quantum of proof that the guarantors must offer is a
different matter. It is merely "sufficient evidence to
permit a reasonable jury to resolve the point in the
nonmoving party's favor." Hope Furnace Associates, Inc. v.
FDIC, 71 F.3d 39, 42-43 (1st Cir. 1995). In evaluating the
sufficiency of this evidence on summary judgment, inferences
1Courts often say that the party seeking summary
judgment bears the burden to show that there is no genuine
issue of fact. See, e.g., Johnson v. United States Postal
Serv., 64 F.3d 233, 236 (6th Cir. 1995). This is true enough
in general terms, and true specifically as to facts that the
moving party would have to prove at trial; but given Celotex,
the generalization may be misleading as to facts that the
nonmoving party would have to prove at trial as part of its
own claim or defense.
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are drawn in favor of the nonmoving party. Brown, 54 F.3d at
24. Thus, the guarantor's burden is not a heavy one. But it
is still their burden to point to admissible evidence that
would "permit" a factfinder to conclude rationally that the
FDIC had acted fraudulently or in bad faith.
Here, Brandon Woods has offered no reason whatever why
the FDIC should have chosen deliberately to undermine the
foreclosure sale. The FDIC relied upon that sale to generate
immediate proceeds to cover its claim and, on the surface, it
had no motive to diminish the recovery from its own security.
The prior contractor's lien was only somewhat above the
$300,000 realized at the sale. If the property were worth
millions more, it was plainly in the FDIC's interest to
obtain the highest price--especially since a deliberate
failure to seek it could give the guarantors a defense
against claims on the guarantees.
If the mortgagee in a foreclosure case buys the property
itself, it may well have an interest in paying less while
preserving its claim for the deficit; but Brandon Woods does
not suggest that the winning bidder at the foreclosure was a
pawn of the FDIC. Other malign motives could also be
imagined but are not suggested here either by the guarantors
or the surrounding circumstances. In a negligence case this
would not matter but bad faith almost always assumes a
motive. It is an uphill effort for the guarantors to urge
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that, without any apparent motive and contrary to its own
best interest, the FDIC chose to sabotage its own foreclosure
sale.
Nor is there any indication of how, in the guarantors'
view, this sabotage was carried out. An affidavit of the
FDIC describes the notice given for the auction and the
bidding process. Notice was given in a number of journals
(e.g., The Chicago Tribune, Crain's Chicago Business, Glen
Ellyn News), and it appears that marketing efforts by a
professional were made in addition to the notices.
Allegedly, 20 potential bidders appeared. In the event,
three persons bid. The state court thereafter confirmed the
sale, finding that the sale was properly conducted.
Normally, a party suggesting fraud or bad faith is
expected to point to the misconduct (lies, rigged account
books, self-dealing by a fiduciary) that reflects the bad
faith or constitutes the fraud. Cf. Fed. R. Civ. P. 9(b).
True, on some occasions the inference of fraud or bad faith
might be compelled by the combination of motive and outcome;
but here motive is utterly lacking and the outcome far more
ambiguous than the guarantors suggest. In all events, the
failure to allege any specific misconduct consonant with
fraud or bad faith further impairs the guarantors' claim.
Against this background, Brandon Woods points to two
circumstances: the supposed discrepancy in amounts between
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estimates of value and the price received, and the admitted
delay in the sale. The most striking difference in amounts
is between the $13 million suggested by the bankruptcy court
and the $300,000 winning bid two years later. Massachusetts
courts have held what common sense would in any event
suggest: that the disparity between appraised value and
amount received in foreclosure does not generally show bad
faith but might do so in extreme circumstances. Seppala &
Aho Constr. Co. v. Petersen, 367 N.E.2d 613, 620 (Mass.
1977); see also RTC v. Carr, 13 F.3d 425, 430 (1st Cir.
1993).
In this instance, however, the $13 million figure was
not a serious estimate of the property's then-current value.
As the transcript of the bankruptcy hearing shows, it was
simply an attempt to approximate what the retirement-
community project would be worth if it were ever built and
all of its units sold at a projected price. Finding that
this amount would (slightly) exceed the debt then owed to the
bank, the bankruptcy court offered a few months' delay in the
foreclosure for Brandon Woods to seek more financing. There
was no finding that completion of the project or the sale of
the units was likely.
It is true that in the same bankruptcy proceeding, a
bank expert apparently testified that the property was then
worth just under $7.5 million. But it appears that the
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bank's interest at the time was simply to show that the
property was worth less than the $12 millon or so then
claimed by the bank, and thereby to justify an immediate
sale. Nor do we know whether the bank was valuing the
property at a supposed market value rather than at the lower
price their forced liquidation would ordinarily be expected
to bring. See BFP v. RTC, 114 S. Ct. 1757, 1761-62 (1994).
Not only is the $7.5 million figure largely unexplained,
but it is also undermined as a liquidation value by Romano's
own admission. Romano himself warned the FDIC only a few
months later, in September 1991, that the property might
bring only $2 million on liquidation. And when the property
was sold two years later for $300,000, it was burdened with
$1.1 million in back taxes and the cost of dealing with
certain environmental hazards, including asbestos. Adjusting
the purchase price for these burdens assumed by the
purchaser, the discrepancy between Romano's $2 million figure
and the sale price hardly seems large.
Brandon Woods also points to the delay of two years in
carrying out the sale, which is as close as it ever gets to
identifying a deficiency in the FDIC's conduct. Brandon
Woods makes no effort to show that the delay caused a
substantial reduction in the price ultimately obtained, but
the district court said that property values did decline
during the delay. In any event, the FDIC had itself urged an
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immediate sale; such a sale would have avoided upkeep and
taxes on the property (which may have been earning no
income); and the FDIC is oddly silent about the reasons for
the delay.
The facts just described might be an ample basis for an
inference that the FDIC acted negligently in failing to
dispose more promptly of the property. The impression that
the FDIC lost track of the matter is reinforced by the fact
that, after failing to act for two years, the FDIC was
spurred to make the sale by news that the property was about
to be sold for unpaid taxes.2 If this were a case about
negligence, it might well be one in which summary judgment
could not be granted for the FDIC.
But the broad waiver provision in the guaranties
forecloses such defenses against the bank or its successor in
interest. Brandon Woods does not question this reading nor
claim that Massachusetts law forbids such a waiver. So while
negligence may be a plausible inference (and could also
explain the FDIC's reticence), it is no defense to summary
judgment in these circumstances. If anything, the likelihood
of negligence tends further to undermine the claim that bad
2At oral argument counsel suggested that the explanation
for the delay may be found in efforts of the parties to reach
a "global settlement" involving other Romano-controlled
property in Massachusetts. But in determining whether
summary judgment was properly granted, we must take the
record as it existed in the district court.
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faith or fraud could be inferred as the explanation for the
delay. In all events, there was inadequate evidence of fraud
or bad faith to raise a genuine issue of material fact.
It is unnecessary to consider the issue to which the
parties devote much of their briefs, namely, whether the
guarantors were entitled to litigate about the fairness of
the sale price at all. The FDIC argues that the guarantors
are precluded from doing so because of the state court ruling
that the sale was fair; the guarantors say that they were not
parties to that proceeding even though Brandon Woods itself
was a party. We express no view on the collateral estoppel
issue since it does not affect the outcome.
Affirmed.
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