United States Court of Appeals
For the First Circuit
No. 03-1974
CITIBANK,
Plaintiff,
and GRUPO CATALÁN DE INVERSIONES, S.A.,
Plaintiff, Appellant,
v.
GRUPO CUPEY, INC., and RAMÓN MAC-CROHON,
Defendants,
and AMERICAN INTERNATIONAL INSURANCE
COMPANY OF PUERTO RICO
Defendant, Third Party-Plaintiff-Appellee,
and JUNCOS AL CONSTRUCTION CORP.; JUAN RAMÓN GARCÍA-PATRÓN;
NYDIA ENID GONZÁLEZ; CONJUGAL PARTNERSHIP GARCÍA-GONZÁLEZ;
AL AUTO SALES, INC.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Jay A. García-Gregory, U.S. District Judge]
Before
Lynch and Lipez, Circuit Judges,
and Stearns,* U.S. District Judge.
Juan Ramón Cancio, with whom Rodney W. Colon-Ortiz and Cancio
Covas & Santiago, LLP, were on brief, for appellant.
Francisco Rosa Silva, with whom Juan J. Hernández-López de
Victoria, Juan A. Ortiz-Cotto and Rosa-Silva, Rosa-Domenech &
Hernández-López de Victoria, PSC, were on brief, for appellee.
August 30, 2004
* Of the District of Massachusetts, sitting by designation.
LIPEZ, Circuit Judge. This case requires us to resolve
a dispute over the provision of a surety bond that limits the
surety's liability to the original beneficiaries named in the bond.
In the midst of litigation between the surety and one of the named
beneficiaries, the beneficiary assigned its interests under the
bond to a third party. The district court allowed the third party
to take the place of the beneficiary in the litigation, but then
dismissed the third party's complaint because the bond limited the
surety's liability to the original named beneficiaries. Agreeing
with this disposition, we affirm.
I.
In the summer of 1998, Grupo Cupey, Inc., arranged for
the development and financing of a residential real estate project,
known as Vista de Cupey, in Trujillo Alto, Puerto Rico. On June
26, 1998, it engaged Juncos Al Construction Corporation (Juncos Al)
to serve as contractor. On July 6th, 1998, the American
International Insurance Company of Puerto Rico (AIICO) issued a
performance bond (the bond) for the amount of $3,700,000.00 for the
benefit of Grupo Cupey in the event that Juncos Al defaulted on its
obligations. That same day, AIICO issued a "dual obligee rider" to
the bond (the rider). The rider added Citibank, N.A., as an
obligee under the bond in anticipation of Citibank providing
financing to Grupo Cupey for the Vista Cupey project.
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On July 15, 1998, Citibank executed a loan agreement in
which it extended to Grupo Cupey a line of credit for a maximum
amount of $4,556,500.00. Under that agreement, Citibank advanced
$3,187,981.83 to Grupo Cupey. As collateral for the loan, Grupo
Cupey executed a promissory note and a mortgage. Citibank also
procured a personal guarantee of the loan from a businessman, Ramón
Mac-Crohon.
On November 1, 1999, after several delays in
construction, Grupo Cupey declared Juncos Al to be in default on
its obligations as contractor.1 With the project stalled, Grupo
Cupey failed to make loan payments to Citibank. On January 3,
2001, Citibank filed claims in the U.S. District Court in Puerto
Rico against Grupo Cupey, Ramón Mac-Crohon as a guarantor of the
Grupo Cupey loan, and AIICO in its capacity as surety for Juncos
Al. Subsequently, Citibank, Grupo Cupey, and Mac-Crohon entered
into settlement agreements. The sole remaining claim in this
appeal is the claim against AIICO.
On November 14, 2001, Citibank and Grupo Catalán entered
into a purchase agreement that purported to "sell, assign and
transfer" to Grupo Catalán "any and all rights, claims and causes
of action that [Citibank] now has or hereafter acquires in
connection with the [Grupo Cupey loan]." Citibank requested,
1
Grupo Cupey filed claims against Junco Al and AIICO in the
Puerto Rico courts.
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pursuant to Fed. R. Civ. P. 25(c), that Grupo Catalán be
substituted for Citibank in the ongoing litigation.2 On April 16,
2002, the district court granted Citibank's request that Grupo
Catalán be substituted for it.
On November 15, 2002, AIICO filed a motion to dismiss
Grupo Catalán's suit for "failure to state a claim upon which
relief can be granted." Fed. R. Civ. P. 12(b)(6). It argued that
the terms of the bond and the rider expressly limited AIICO's
liability to Citibank and Grupo Cupey. As such, AIICO argued,
Grupo Catalán could not state a claim for performance under the
bond. On May 8, 2003, the district court granted AIICO's motion to
dismiss, ruling that the bond and the rider limited AIICO's
liability to claims by Citibank and Grupo Cupey. Grupo Catalán
now appeals the district court's decision.
II.
We exercise de novo review over the grant of a motion to
dismiss filed pursuant to Rule 12(b)(6). See, e.g., New Eng.
Cleaning Servs. v. Am. Arbitration Ass'n, 199 F.3d 542, 544 (1st
Cir. 1999). "We accept as true the well-pleaded factual
allegations of the complaint, draw all reasonable inferences
2
Fed. R. Civ. P. 25(c) provides in relevant part:
In case of any transfer of interest, the action may be continued by
or against the original party, unless the court upon motion directs
the person to whom the interest is transferred to be substituted in
the action or joined with the original party.
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therefrom in the plaintiff's favor, and determine whether the
complaint, so read, sets forth facts sufficient to justify recovery
on any cognizable theory." TAG/ICIB Servs. v. Pan Am. Grain Co.,
215 F.3d 172, 175 (1st Cir. 2000).
The parties agree that Puerto Rico law governs our
interpretation of the bond and the rider. "Where the parties have
agreed to the choice of law, this court is free to forgo an
independent analysis and accept the parties' agreement." Hershey
v. Donaldson, Lufkin & Jenrette Sec. Corp., 317 F.3d 16, 20 (1st
Cir. 2003) (quotation omitted).
The relevant provision of the rider reads as follows: "No
right of action shall be accrue [sic] on this bond to or for the
use of benefit [sic] of any person or corporation other than the
Owner and Lender herein named . . . ." The rider names Grupo Cupey
as the "Owner" and Citibank as the "Lender." Thus, the above
quoted provision of the rider purports to limit AIICO's liability
under the bond only to Grupo Cupey and Citibank. The plain
language of this provision prevents Grupo Catalán from sustaining
a cause of action against AIICO under the bond because Grupo
Catalán is not named as an "Owner" or "Lender."3
3
We note that Paragraph 1 of the bond, which is unrelated to
the issues on appeal, states that "[t]he Contractor and the Surety,
jointly and severally, bind themselves, their heirs, executors,
administrators, successors and assigns to the Owner for the
performance of the Construction Contract." (emphasis added).
Thus, the parties were seemingly aware that such language was
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Grupo Catalán argues that, under Puerto Rico law, surety
contracts are to be construed liberally in favor of the
beneficiary, and that this rule of construction requires us to find
that Grupo Catalán can sustain a claim against AIICO as the
assignee of Citibank's rights under the rider. Although "[t]he
prevailing doctrine is that [a surety bond] should be liberally
interpreted in favor of its beneficiary," that principle "is not a
blank check to the judicial power to rule out the pacts and
agreements between the parties." Luan Inv. Corp. v. Rexach Constr.
Co., 2000 T.S.P.R. 182, 2000 WL 1847637 at *5 (P.R. 2000) (internal
quotation and citation omitted). Rather, the rule of liberal
construction applies only where the text of the agreement is
ambiguous. "[I]f the text of a bond agreement is clear, or the
true meaning of its clauses can be easily discerned, the courts
should adhere to its text." Caugus Plumbing, Inc., v. Continental
Const. Corp., 2001 T.S.P.R. 164, 2001 WL 1618390 at *5 (P.R. 2001);
see also Id. at *6 ("[The principle of liberal construction] does
not mean or justify going beyond the clear language of the
obligation. It is not a carte blanche for imposing, through
judicial construction, obligations that a surety never thought of
assuming.") (internal quotation omitted).
necessary to bind future parties to the bond. If the parties had
intended to allow rights of action against the surety by Citibank's
"heirs, executors, administrators, successors and assigns," they
could have explicitly stated that intention.
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The adherence to the clear text of a surety agreement is
consistent with the Puerto Rico Civil Code, which provides that
"[c]ontracting parties may make the agreement and establish the
clauses and conditions which they may deem advisable, provided they
are not in contravention of the laws, morals, or public order."
P.R. Laws Ann. tit. 31, § 3372. The code specifically allows
sureties to bargain for contractual concessions from beneficiaries.
"The surety may bind himself to less but not to more than the
principal debtor as to quantity as well as the burden of the
conditions." P.R. Laws Ann. tit. 31, § 4875. We see no overriding
principle that should prevent a surety from bargaining for a
contractual provision that prevents parties other than those named
in the original transaction from pursuing a cause of action under
the bond.
In this case, the text of the rider is clear. It
explicitly limits AIICO's liability under the bond to Citibank and
Grupo Cupey. Moreover, it does not provide any means by which
those parties can assign their rights to pursue a cause of action
under the bond. Thus, by the plain language of the rider, Grupo
Catalán cannot sustain a claim against AIICO as Citibank's
assignee.
Appellant devotes much of its brief to the argument that
Grupo Catalán can sustain a cause of action against AIICO as a
"successor" to Citibank. Implicit in this argument is the
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contention that Paragraph 7 of the unamended bond, rather than the
language of the rider, governs causes of action against AIICO.
Paragraph 7 states that "[n]o right of action shall accrue on this
Bond to any person or entity other than the Owner or its heirs,
executors, administrators or successors." We do not have to
determine whether Grupo Catalán qualifies as a "successor" of
Citibank because the more restrictive language of the rider, not
the language of Paragraph 7 of the unamended bond, governs Grupo
Catalán's rights against AIICO. The rider, by its own terms,
amended the bond in several respects, including the addition of
new, more restrictive language that limited causes of action
against AIICO to "the Owner and Lender herein named," and did not
extend rights to "successors."
Finally, appellant argues that the district court
explicitly recognized that Grupo Catalán could pursue a cause of
action against AIICO when it allowed Grupo Catalán to replace
Citibank pursuant to Fed. R. Civ. P. 25(c). However, Rule 25(c)
"is a procedural vehicle 'not designed to create new relationships
among parties to a suit.'" Maysonet-Robles v. Cabrero, 323 F.3d
43, 49 (1st Cir. 2003) (quoting Pacamor Bearings, Inc. v. Minebea
Co., 892 F. Supp 347, 360 (D.N.H. 1995)). It involves "a
discretionary determination by the trial court to facilitate the
conduct of the litigation." Id. Thus, "Rule 25 does not
substantively determine what actions survive the transfer of an
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interest." ELCA Enters. v. Sisco Equip. Rental & Sales, 53 F.3d
186, 191 (8th Cir. 1995); see also 6 James Wm. Moore et al.,
Moore's Federal Practice, ¶ 25.32 (3d ed. 2004) ("Rule 25(c) is
merely a procedural device designed to facilitate the conduct of
the case, and does not alter the substantive rights of the parties
or the transferee.").
In this case, the court's procedural decision to allow
substitution pursuant to Rule 25(c) did not affect the substantive
rights of the parties under the bond. As explained above, the bond
and the rider expressly limited AIICO's liability; Citibank and
Grupo Catalán could not circumvent that limitation through a
transfer of interests and a subsequent substitution of parties.
Rather, Grupo Catalán's ability to pursue a cause of action against
AIICO is governed by the agreements of the original parties to the
bond, and is not contingent on the district court's procedural
decision to allow substitution pursuant to Rule 25(c).
III.
For the foregoing reasons, the judgment of the district
court is AFFIRMED.
SO ORDERED.
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