USCA1 Opinion
No. 96-2200
BAYBANK,
Plaintiff, Appellant,
v.
VERMONT NATIONAL BANK,
Defendant, Appellee.
____________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Douglas P. Woodlock, U.S. District Judge]
____________________
Before
Torruella, Chief Judge,
Bownes, Senior Circuit Judge,
and Stahl, Circuit Judge.
____________________
John
J.
Kuzinevich
with
whom
Is
aac H. Peres and Kuzinevich & Miller,
P.C. were on brief for appellant.
Robert W. Mahoney with whom Joseph L. Stanganelli, Hale and Dorr,
LLP, and Potter Stewart, Jr. were on brief for appellee.
____________________
July 7, 1997
____________________
STAHL, Circuit Judge.
Plaintiff-appellant Baybank filed a seven count
complaint
against defendant-appellee Vermont National Bank for
damages arising out of a failed loan in which Baybank had
purchased
a
participation.1 The district court granted summary
judgment
in
favor
of
Vermont National, and Baybank now appeals.
Finding no error, we affirm.
Background
In 1986 Vermont National made a $1,750,000 loan due
to mature on June 5, 1988, to Liftline Lodge, Inc., a ski
operation. In early 1988, Vermont National and Baybank began
negotiating
Baybank's potential participation in the loan. In
April,
Baybank
consummated the purchase of an interest equal to
90%
of
the
outstanding principal balance of the Liftline loan.
The parties executed a participation agreement and a
participation certificate to memorialize the arrangement.
The participation agreement contained several
inaccuracies.
The agreement reflected a loan in the amount of
$1,417,500 with an origination date of October 3, 1986, to
mature on October 3, 1996. In fact, $1,417,500 represented
only
the
amount
of
Baybank's participation, the loan originated
on June 5, 1986 and was to mature on June 5, 1988. The
1. Baybank alleged breach of the participation agreement
(two counts), breach of trust, breach of fiduciary duty and
conversion. Baybank also sought declaratory and injunctive
relief against Vermont National.
-2-
2
agreement
made
no
mention of renewal of the loan upon maturity.
On June 5, 1988, six weeks after Baybank's purchase
of the participation and upon the maturity date, Vermont
National renewed the Liftline loan for a five year period to
mature on June 5, 1993. Vermont National continued to remit
and Baybank continued to accept without comment its 90%
interest in Liftline's payments on the loan. By February,
1991, however, due to a series of poor ski seasons, Liftline
defaulted on the loan and filed for bankruptcy.
Upon Liftline's default, Baybank cooperated with
Vermont National in trying to resolve the Liftline situation
favorably.
Baybank
neither demanded payment in full of its 90%
share of the loan nor asserted that it had never agreed to
participate in the 1988 renewal. It was not until 1993 that
Baybank
first alleged that it never intended to participate in
the renewal and filed this complaint.
In
its
complaint,
Baybank sought damages arising from
Vermont National's alleged breach of the participation
agreement. Baybank claimed that the participation agreement
did
not
extend to the renewal and, therefore, Vermont National
owed Baybank its 90% share of the loan at maturity on June 5,
1988.
Baybank
based
its
claims for conversion, breach of trust
and breach of fiduciary duty on this same allegation.
Alternatively, Baybank contended that, even if the
participation agreement extended to the renewal, Vermont
-3-
National breached the agreement by failing to provide Baybank
with
items
of financial information as the agreement required.
The
district
court granted summary judgment against Baybank on
all counts. This appeal followed.
Standard of Review
We
review
the
award
of
summary judgment de novo. See
Ortiz-Pinero v. Rivera-Arroyo, 84 F.3d 7, 11 (1st Cir. 1996).
Summary judgment is appropriate in the absence of a genuine
issue of material fact, when the moving party is entitled to
judgment as a matter of law. See Fed. R. Civ. P. 56(c). A
fact is material when it has the potential to affect the
outcome
of
the suit. See J. Geils Band Employee Benefit Plan
v. Smith Barney Shearson, Inc., 76 F.3d 1245, 1250-51 (1st
Cir.), cert. denied, 117 S. Ct. 81 (1996). Neither party may
rely
on
conclusory allegations or unsubstantiated denials, but
must identify specific facts derived from the pleadings,
depositions, answers to interrogatories, admissions and
affidavits
to
demonstrate either the existence or absence of an
issue of fact. See Fed. R. Civ. P. 56(c) & (e).
Discussion
The central issue this case raises is whether the
participation
agreement
contemplated Baybank's participation in
the renewal. Finding the agreement ambiguous, the district
court
admitted extrinsic evidence of the parties' intent as an
aid
in
its
construction of the agreement. The court concluded
-4-
4
that Baybank had agreed to participate in the renewal. On
al Baybank contends that the contract was not ambiguous,
and that even if it was, the evidence at a minimum precluded
summary judgment on its claims. We examine each of Baybank's
arguments in turn.
A. Was the Participation Agreement Ambiguous?
T
appe he
parties
agree that pursuant to the participation
agreement,
Vermont law governs this dispute. See Miniter Ins.
Agency, Inc. v. Ohio Indemnity Co., 112 F.3d 1240, 1245 (1st
Cir.
1997)
(indicating that where parties agree as to what law
governs, federal court sitting in diversity is free to forego
an
independent
analysis
and may accept the parties' agreement).
The parties also agree that the participation agreement
misidentified several terms of the actual agreement,
specifically, the amount of the loan and the origination and
maturity dates. Baybank characterizes these as "scrivener's
errors" and contends that under Vermont law the participation
agreement reflects no substantive ambiguity.
In Vermont, whether a contract is ambiguous is a
question of law.2 See Breslauer v. Fayston Sch. Dist., 659
2. The parties agree that we should construe the
participation agreement under general contract principles.
See, e.g., Den Norske Bank v. First Nat'l Bank of Boston, 75
F.3d 49, 52 (1st Cir. 1996) (applying general contract
principles under Massachusetts law to analyze disputed
participation agreement). Neither our research nor that of
the parties has uncovered any Vermont authority suggesting a
more appropriate analytical approach.
-5-
5
A.2d
1129,
1135 (Vt. 1995); Isbrandtsen v. North Branch Corp.,
556 A.2d 81, 83 (Vt. 1988). Vermont law, however, does not
restrict courts making that inquiry to the four corners of a
written agreement. Instead, courts may consider extrinsic
evidence of "the circumstances surrounding the making of the
agreement as well as the object, nature and subject matter of
the
writing," Breslauer, 659 A.2d at 1135 (internal quotation
omitted), and will find ambiguity in the event that a writing
in itself supports a different interpretation than that which
appears when read in light of the surrounding circumstances,
See Isbrandtsen, 556 A.2d at 84. Both interpretations,
however, must be reasonable in order to establish ambiguity.
See id.
On its face the participation agreement seems
unambiguous.
The parties, however, agree that the amounts and
dates in the agreement do not reflect their actual
understanding
, and each party directs us to extrinsic evidence
suggesting
competing
interpretations of the agreement. That we
must resort to extrinsic evidence to determine the intent of
the parties renders the contract necessarily ambiguous.3
3. Without regard to the legal strategy of either party, we
note that neither of the litigants sought rescission and
reformation on the basis of mistake. In Vermont,
"[r]eformation is appropriate when an agreement has been
made, or a transaction has been entered into or determined
upon, . . . , but in reducing such agreement or transaction
in writing, the written instrument fails to express the real
agreement or transaction." LaRock v. Hill, 310 A.2d 124, 126
(Vt. 1973) (internal citations and quotations omitted).
-6-
6
Baybank argues unpersuasively that consideration of
the participation certificate in conjunction with the
participation agreement renders the latter unambiguous in
Baybank's favor. We recognize that the participation
certificate, executed on the same date as the participation
agreement, correctly states the amount of Baybank's
participation and explicitly refers to the June 5, 1986 note
which had a maturity date of June 5, 1988. The participation
certificate, however, neither references the participation
agreement nor explicitly sets any parameters on Baybank's
participation. The certificate, in other words, does not
definitively resolve the agreement's ambiguity.
Even if we assume that consideration of these two
documents
together results in one reasonable interpretation of
the participation agreement, a host of extrinsic evidence in
the record supports an alternative but equally reasonable
interpretation. Much of this evidence also bears on the
substance
of
Baybank's breach of contract claim and we discuss
it fully in our analysis of that claim. We note only that
Vermont law directs us to consider the circumstances
Reformation of this agreement would require a consideration
of any extrinsic evidence of the terms of the actual
agreement which the writing in question failed to record.
See Paradise Restaurant, Inc. v. Somerset Enters., Inc., 671
A.2d 1258, 1262 (Vt. 1995). Whether through reformation or
through a finding of ambiguity, therefore, we would need to
construe the agreement through relevant extrinsic evidence.
As the parties have chosen the route of ambiguity, we let
that doctrine frame our analysis.
-7-
7
surrounding the agreement; it does not direct us to select a
single circumstance which if considered in a vacuum might
resolve the ambiguity. See Breslauer, 659 A.2d at 1135
(directing courts to consider evidence on the circumstances
surrounding
the making of the agreement as well as the object,
nature and subject matter of the agreement itself).
B. Does the Participation Agreement Contemplate the Renewal?
Courts faced with ambiguity in a contract resort to
"subordinate
rules of construction," see Isbrandtsen, 556 A.2d
at 85, including consideration of extrinsic evidence, see
Abbiati
v.
Bu
ttura & Sons, Inc., 639 A.2d 988, 991 (Vt. 1994),
to determine the proper construction of the contract. The
proper construction is that which reflects or effectuates the
intent of the parties. See Abbiati, 639 A.2d at 991. In any
given case relevance guides the use of extrinsic evidence.
Some of the same evidence that may bear on whether a written
contract is ambiguous may also cast light on the proper
interpretation of the language upon a finding of ambiguity.
See, e.g., id. at 991 (indicating that circumstances under
which
the
contract arose are relevant in determining intent of
parties).
Generally, the construction of a contract is a
question of law. See Morriseau v. Fayette, 670 A.2d 820, 826
(Vt.
1995).
"[W]here the meaning of a contract is uncertain,"
however, "the intent of the parties becomes a question of
-8-
8
fact."
Housi
ng Vt. v. Goldsmith & Morris, 685 A.2d 1086, 1088
(Vt.
1996).
In
this
case, therefore, we must determine whether
the
record
contains
sufficient evidence from which a reasonable
jury
could
conclude that Baybank did not intend to participate
in the renewal. We conclude that the record in this case
allows for no such dispute. Instead it reflects that the
parties intended the participation agreement to extend to the
renewal, and, therefore, the district court appropriately
granted summary judgment in favor of Vermont National.
From Baybank's negotiations with Vermont National
prior
to
June 5, 1988, the date that Baybank now claims marked
the end of its participation period, until September of 1993,
when
Baybank
filed
its
complaint, Baybank repeatedly reaffirmed
its understanding that its participation extended to the
renewal. George Todd Marchant, Vice President in Baybank's
commercial loan department and member of Baybank's loan
committee,
negotiated the initial participation agreement with
Louis Dunham, Executive Vice President of Vermont National.4
Marchant
testified
that
he and Dunham discussed the anticipated
renewal
of
the
Liftline
loan scheduled to occur six weeks after
Baybank purchased its participation, and that the loan
committee's approval of participation in the Liftline loan
4. The loan committee at Baybank had final authority to
approve loans in which Baybank sought to participate.
-9-
9
included participation in the renewal.5 Marchant further
testified that a handwritten note in the top corner of one of
the
loan
documents produced from Baybank's file read "per Lou,
this note will be renewed on the same terms."6
From September 1991 to spring 1993, David Hobert,
then an account officer with Baybank, served as the
participating agent in the loan. In this capacity, Hobert
oversaw the relationship between Baybank and Vermont National
pertinent to the Liftline loan and worked with officials at
Vermont National "in administering the direction of the loan
and foreclosure." Hobert testified that when he assumed
oversight
of
the
loan,
nearly two years after the maturity date
to
which
Baybank now clings, "it was understood that [Baybank]
had a 90% participation."
On behalf of Baybank, Hobert worked closely with
Vermont
National as the two banks considered their options and
planned
their
workout
strategies.7 Hobert visited the Liftline
5. Marchant testified that he recalled a three year renewal
rather than the five year renewal Vermont National asserts.
To the extent that fact is in dispute, it is not material to
Baybank's claim; Baybank does not dispute the length of time
of any renewal to which it agreed. Instead, Baybank argues,
it never agreed to any renewal at all.
6. The testimony of Louis Dunham, Executive Vice President
of Vermont National, corroborates Marchant's understanding of
the scope of the participation.
7. Interestingly, rather than immediately file the present
complaint against Vermont National, shortly after default
Baybank filed suit in state court in Massachusetts against
guarantors of the loan.
-10-
10
lodge in 1992, nearly four years after the maturity date
Baybank claims, to examine the collateral and participate in
negotiations with the lodge owners on clearing the debt.
Hobert
testified that he made this trip because Baybank "was a
90%
participant
in
the
loan," and he was invited to inspect the
property
with
the
lead
bank. On behalf of Baybank, Hobert also
proposed a settlement with Liftline's guarantors and proposed
that Baybank and Vermont National form a corporation of which
Baybank would own 90% and Vermont National would own 10%, for
the
purpose
of
taking
title to the property and other assets of
Liftline.
Documentary
evidence from Baybank's files throughout
the life of the loan further undermines Baybank's renewal
claim.
In
October
1988
and again in 1989, Baybank sent Vermont
National "audit confirmation" notices requesting Vermont
National
to
submit information regarding Baybank's interest in
the Liftline loan. Both of the notices reflect a due date or
maturity date of June 5, 1993, which corresponds with the
maturity date of the renewed loan. Watch List Reports, in
which Baybank lists "troubled" loans requiring additional
monitoring,
listed
the
Liftline loan and specifically indicated
an origination date of April 25, 1988 and a maturity date of
June 5, 1993.
As indicated, the question of the intent of the
parties
to
an ambiguous agreement is one of fact. See Housing
-11-
11
Vt., 685 A.2d at 1088. In this case Baybank has failed t
any evidence that would place its intent t
n the renewal in dispute. Instead, the record in
o
identify o
participate
i
this
case
establishes beyond question that Baybank intended to
and did participate in the renewal of the Liftline loan.
Accordingly, the district court correctly granted summary
judgment in favor of Vermont National.8
C. Did Vermont National Commit Other Breaches of the
Participation Agreement?
Baybank contends that even if the participation
agreement
did extend to the renewal, Vermont National breached
the
agreement
by
failing
to provide it with certain information
the agreement required. Baybank also claims that Vermont
National
settled
a
claim
against the individual guarantors over
8. Our conclusion that Baybank intended to participate in
the renewal also forecloses Baybank's claims for conversion,
breach of trust, and breach of fiduciary duty, all of which
Baybank premises on its argument that the participation
agreement required Vermont National to remit Baybank's 90%
participation on June 5, 1988 rather than roll the funds into
the renewal. With respect to conversion and breach of trust,
Baybank fails to establish that Vermont National did anything
impermissible with Baybank's participation interest. If we
accept Baybank's assertion that Vermont National had a
fiduciary duty to Baybank at least with respect to paying
Baybank its share of the Liftline loan proceeds, Baybank
fails to establish any conduct by Vermont National that
constitutes a breach of that duty. Vermont National
continued paying Baybank its participation share of the
monthly payments until the default, and Baybank continued to
accept those payments. After the bankruptcy court provided
Vermont National with adequate protection payments on the
Liftline loan, Vermont National forwarded Baybank 90% of each
monthly payment.
-12-
12
Baybank's objection in contravention of the participation
agreement.9 We find neither of these arguments persuasive.
The participation agreement provides:
As long as the Participating
Bank continues to have an
ownership interest in the Loan,
the Originating Bank agrees to
regularly provide the
Participating
Bank with complete
and current credit related and
other
information concerning the
Borrower, the Loan and the
collateral
securing the Loan . .
. .
Baybank points us to the deposition testimony of Kathleen
Mullin
and
David
Hobert,
Baybank employees who oversaw the loan
at different points during its existence. The district court
reviewed
both of these sources and determined that they failed
to establish even a dispute of fact as to whether Vermont
National breached the participation in this way.
We
need
not
revisit this evidence in detail. Mullin
testified
that
she
could
not remember specifically what Vermont
National had failed to provide and what she had or had not
received.
Hobert professed no knowledge as to why Baybank had
9. Baybank insists that it adduced "strong evidence" that
Vermont National and Liftline did not actually execute the
original loan on June 5, 1986, but rather backdated the note
to reflect that date. According to Baybank, but for the
backdating, the note was actually in default, and the
participation agreement required Vermont National to inform
Baybank of any default. Baybank's brief, one-paragraph
discussion of this argument offers us no compelling reason to
repeat the district court's thorough analysis or to disturb
the court's legal conclusions.
-13-
13
not received certain documents, specifically, whether it was
due
to
Vermont
National's delinquency or that of the debtors or
guarantors. Mullin and Hobert simply could not recollect
exactly what information Baybank had in its possession, what
information Baybank sought and what information Vermont
National failed to produce. In short, we agree with the
district
court that their testimony fails to raise any genuine
issue of material fact on this claim.
Finally, Baybank argues that Vermont National
breached the participation agreement by settling a claim
against the individual guarantors of the Liftline loan. The
participation agreement prohibited Vermont National from
"waiv[ing]
or
releas[ing] any claim against any Borrower and/or
against any co-maker, guarantor or endorser under the Loan."
Baybank directs us to the affidavit of Richard Butler, Senior
Vice President of Baybank, who claims that Vermont National
settled against the guarantors in contravention of Baybank's
instructions. This conclusory assertion simply
mischaracterizes the record.
The record reveals that on April 15, 1993, Mark
LaPointe of Vermont National and David Hobert met with
attorneys for the guarantors. Hobert, not LaPointe, proposed
a settlement but failed to reach an agreement with the
guarantors.
A
memorandum dated April 20, 1993, the veracity of
which
Baybank
does
not
dispute, memorializes this meeting. The
-14-
14
guarantors then moved to enforce a settlement agreement in
bankruptcy
court despite the fact that none of the parties had
agreed to final terms of settlement. Vermont National and
Baybank both opposed the motion. The bankruptcy court,
however, granted the motion, effectively forcing settlement
upon
the
banks. Butler's conclusory allegations fail to raise
a genuine issue of material fact.
Conclusion
Having
found
no error, we conclude that the district
court appropriately granted summary judgment in favor of
Vermont National on all counts.
Affirmed. Costs to appellee.
-15-
15