Bezanson v. Fleet Bank, NH

Opinion

USCA1 Opinion

UNITED STATES COURT OF APPEALS
                            UNITED STATES COURT OF APPEALS
                                FOR THE FIRST CIRCUIT
                                FOR THE FIRST CIRCUIT
                                 ____________________

        No. 93-2040

              DENNIS G. BEZANSON, TRUSTEE OF THE ESTATE OF UNITEX, INC.,

                                Plaintiff, Appellant,

                                          v.

                                   FLEET BANK - NH,

                                 Defendant, Appellee.

                                 ____________________

                     APPEAL FROM THE UNITED STATES DISTRICT COURT

                          FOR THE DISTRICT OF NEW HAMPSHIRE

                    [Hon. Paul J. Barbadoro, U.S. District Judge]
                                             ___________________

                                 ____________________

                                        Before

                              Torruella, Cyr and Boudin,

                                    Circuit Judges
                                    ______________

                                 ____________________

            Graydon G.  Stevens with  whom Kelly,  Remmel &  Zimmerman was  on
            ___________________            ___________________________
        brief for appellant.
            Francis L.  Cramer  with whom  Valerie  A.  Walsh and  Sullivan  &
            __________________             __________________      ___________
        Gregg, P.A. were on brief for appellee.
        ___________

                                 ____________________

                                    July 14, 1994
                                 ____________________

BOUDIN, Circuit  Judge.   Unitex, Inc., a  New Hampshire
                         ______________

            Corporation,  made graphics equipment  purchased by newspaper

            and magazine publishers.  In  March 1985, Unitex defaulted on

            a  $3 million  bank loan  owed to  Indian Head  National Bank

            ("the  bank").1   The  loan was  secured  by all  of  Unitex'

            assets and on March  8, 1985, Indian Head took  possession of

            Unitex'  entire operation.   The  bank's object  was  to sell

            Unitex  as an  ongoing business,  but for  the time  being it

            reduced  Unitex'   activities  to  servicing   customers  and

            providing spare parts.   A number  of Unitex' customers  told

            the bank that  they would  cease using Unitex  as a  supplier

            unless Unitex acquired new management by June 1985.

                 In late  May 1985,  after soliciting  unsuccessfully for

            buyers, the bank received  an offer from Graphics Technology,

            Inc. ("GTI").   GTI was  a start-up company  formed by  three

            principals  in order  to purchase  Unitex.   Two of  them had

            considerable  experience  in  graphics  technology   and  the

            principals visited the Unitex  plant and spoke with employees

            and distributors.  GTI aimed to purchase Unitex with borrowed

            money  and retained  two firms  to assist  it in  raising the

            capital:  A  R Technology, Inc., a  financial consultant, and

            Parker Benjamin, Inc., a regional investment banker.

____________________

                 1Fleet Bank-NH  ("Fleet") succeeded to the  interests of
            Indian Head at some  time after the transactions at  issue in
            this case.

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On May 22, 1985, GTI made a written offer to Indian Head

            to  purchase the  assets of  Unitex  for $3,250,000.   Ronald

            Cote, the bank officer primarily  involved in seeking a buyer

            for  the assets,  spoke to  a Parker  Benjamin representative

            several times  and was  told that  it had  a  "high level  of

            confidence [the] deal  can be  done and rather  quickly."   A

            representative  of A R Technology, Inc. also told the bank of

            Parker  Benjamin's optimism.   The bank  drafted but  did not

            transmit a letter dated May 27 accepting GTI's May 22 offer.

                 On  May 29, 1985, the  GTI principals met  with Cote and

            the bank's president  to discuss the May 22 offer.   The bank

            presented a draft proposal calling for a July 12 closing date

            and a $200,000 nonrefundable deposit to be made when the bank

            accepted the  offer.  GTI  furnished a proposed  interim plan

            for GTI to take over operation of Unitex prior to the closing

            (the bank  having expressed a desire  to surrender day-to-day

            management).   Indian  Head objected  to two  aspects of  the

            interim operation  plan and  GTI offered modifications.   GTI

            balked  at  the  $200,000 deposit  and  this  issue was  left

            unresolved.

                 On June 1, 1985,  GTI sent Cote a letter  providing more

            detail about  the interim  operating plan and  increasing the

            GTI  offer  to  $3,400,000.   The  letter  said  that  Unitex

            customers, contacted  by GTI, were enthusiastic  and some had

            expressed an  interest in  offering  financial assistance  to

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GTI, if required; also,  according to the letter,  key former

            Unitex employees were  willing to rejoin the company.   There

            was no mention  of the nonrefundable deposit,  but the letter

            said that GTI was "rapidly reviewing the remaining few  [open

            points] for a final solution."  

                 On June  3, 1985, Chorus Data  Systems, Inc. ("Chorus"),

            made  the  bank a  competing  proposal.    In  substance,  it

            proposed a joint venture between Chorus and  the bank looking

            toward  the operation of Unitex  for a period,  followed by a

            public offering of a  rebuilt Unitex a year or  so hence; the

            bank's expected gain  was projected to be between  $3 million

            and $8 million, depending on the price obtained in the public

            offering.   The bank was attracted by the prospect of sharing

            in the value of a revived Unitex.   In a June 4 meeting  with

            GTI representatives, the bank rejected GTI's offer.

                 On June 5,  1985, representatives of the bank and Chorus

            met.   Cote rejected the joint venture approach on grounds of

            unspecified  regulatory problems;  he suggested  instead that

            Fleet take a note  for $3 million from a proposed new company

            (which would own the Unitex assets) and convert the note into

            equity four  months later.   An agreement in  principle along

            these lines was reached either then or the next day.  On June

            6, GTI was told that  the bank had decided to sell  Unitex to

            another bidder.   Unitex' customers were  advised that Unitex

            would soon be operating under new ownership headed by Chorus.

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On June 20, 1985,  Chorus and the bank signed  a written

            agreement.   The details  are complicated but  in substance a

            new corporation--called Cuneiform--was to purchase the Unitex

            assets.  A $3  million interest bearing note would  be issued

            to the bank  by Cuneiform, and the note would be exchanged in

            120  days for convertible preferred  stock to be  held by the

            bank.  If, as  the parties anticipated, the new  company were

            ultimately offered to the public or sold  to another company,

            the  preferred stock would be converted to common stock at an

            agreed upon ratio and the bank would obtain 49 percent of the

            business  and thereby share in the upside profit.  No deposit

            was  required from Chorus or  the new entity,  nor did Chorus

            provide any guarantee of the $3 million note.

                 In  July   1985,  Unitex  filed  for   bankruptcy.    In

            bankruptcy,  the  claims  of  unsecured creditors  of  Unitex

            exceeded  $3,700,000.   On  March 7,  1990, Dennis  Bezanson,

            trustee  of the estate of Unitex, filed the present action in

            district court against Fleet as the successor to Indian Head.

            The complaint, so far as pertinent  here, charged that Indian

            Head had violated its duty under New Hampshire law by failing

            to dispose of the Unitex  assets in a commercially reasonable

            manner.

                 The case  was tried to a  jury in March 1993.   The jury

            found  in  favor  of  the  trustee  and  awarded  damages  of

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$379,779.21,  effectively  the $3,400,000  offer made  by GTI

            less the amount Unitek owed the bank.2

                 Fleet filed post-trial motions  for judgment as a matter

            of  law or for a new trial,  attacking the jury verdict as to

            both  liability and damages.   In a decision  filed on August

            27,  1993,  the  district   court  found  that  the  evidence

            supported the jury's  finding of liability but that Fleet was

            entitled to judgment as  a matter of law because  the trustee

            had not provided evidence  of damages sufficient to permit  a

            reasonable jury to  find that  damages had  been proved  with

            "reasonable certainty."   The new trial  motion was dismissed

            as moot.

                 The  trustee  has  appealed from  the  district  court's

            judgment  in  favor of  Fleet.   Fleet  not only  defends the

            judgment but  argues, in the  alternative, that  it was  also

            entitled to  judgment as  a matter  of law  on  the issue  of

            liability.  Fleet has not cross-appealed, but  it is entitled

            to defend  the district  court's  judgment--that the  trustee

            take  nothing--on   any  ground  properly  preserved  in  the

            district  court.  See Martin v. Tango's Restaurant, Inc., 969
                              ___ ______    _______________________

            F.2d 1319, 1325 (1st Cir. 1992).

____________________

                 2Although the original  loan to Unitex  had been for  $3
            million,  Indian Head  was owed  $3,020,220.79 in  June 1985,
            apparently because of expenses incurred by the bank for which
            Unitex was responsible.

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We address the issue of liability first and then turn to

            the issue  of damages.  The applicable law in this case is in

            part  state and in part  federal.  State  law determines what

            had to  be proved, by whom and  to what degree of persuasion.

            Federal  law determines  the relationship  between  judge and

            jury, including  the standard--that no reasonable  jury could

            find  otherwise-- for  granting judgment  notwithstanding the

            verdict.   Our review of  such a  judgment is de  novo.   See
                                                          ________    ___

            Biggins v. Hazen  Paper Co.,  953 F.2d 1405,  1409 (1st  Cir.
            _______    _______________

            1992).

                 1.    The  Uniform   Commercial  Code,  adopted  by  New

            Hampshire, provides that sale of collateral to satisfy a debt

            must be "commercially reasonable" in "every aspect" including

            "method, manner,  time, place  and terms."   N.H.  Rev. Stat.

            Ann.    382-A:9-504(3).  We  agree with the  district court's

            concise  gloss on  the  "commercially  reasonable"  language:

            commercial  reasonableness normally depends  on evaluation of

            all   the  circumstances   surrounding  the   disposition  of

            collateral;  and in  general "no  single factor,  even price,

            will conclusively determine the commercial  reasonableness of

            a secured party's actions."3

____________________

                 3See generally, e.g., C.I.T.  Corp v. Lee Pontiac, Inc.,
                  _____________  ____  ____________    _________________
            513 F.2d 207, 209  (9th Cir. 1975); Georgia Pacific  Corp. v.
                                                ______________________
            First  Wisconsin Financial Corp., 805 F. Supp. 610, 617 (N.D.
            ________________________________
            Ill. 1992); 7 A.L.R. 4th 309 (1981) (collecting cases).

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Fleet  argues  on appeal  that  the  party disposing  of

            collateral can never  be deemed unreasonable if it  accepts a

            lower firm  offer in  preference to  a higher  but contingent
                  ____

            one.  This  argument need not  detain us long.   Common sense

            alone suggests that in some circumstances a higher contingent

            offer will be  far more  valuable than a  lower certain  one.

            The proverb says that a  bird in the hand is worth two in the

            bush; it  does not say that a bird in hand is worth more than

            any number of birds in the bush.

                 Even  if there were a rule such as that urged by Fleet--

            which  there is not--it is doubtful that it would apply here.

            The $3 million offer by Chorus appears to have been "certain"

            only in a formal sense.  In substance, nothing secured the $3

            million  note obtained  from  Cuneiform  beyond the  original

            Unitex assets.   This does not  mean that the deal  was a bad

            one from the  bank's point of view  but only that  the "firm"

            offer Indian Head accepted  gave it no more security  than it

            already had.

                 Whether  the  action  of   the  bank  was   commercially

            unreasonable  judged  by  all  the circumstances  is  a  more

            interesting  question.   Perhaps  the  apparent prospects  of

            Unitex as a  going company would have made it  prudent for an

            actual owner of the  assets to reject a $3,400,000  offer and

            to   prefer  an   equity   stake  while   the  business   was

            resuscitated.  Similarly, a security holder, owed $5 million,

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who in good  faith held  out for more  than $3,400,000  might

            well have been able  to defend this judgment as  a reasonable

            one, even if the strategy turned out badly.4  

                 We need not pursue these issues because Indian Head  was

            not the owner of the property,  and its actions as a  secured

            creditor were tainted by bad faith, or  so the jury must have

            found.   One who possesses  collateral for a  loan in default

            cannot walk away with the collateral if it is worth more than

            the debt.   Rather, the  lender normally is  entitled to  the

            value of the collateral  up to the amount of  the outstanding

            debt.    The  balance belongs  to  the  borrower  or, if  the

            borrower  is  then bankrupt,  to  the  bankruptcy trustee  on

            behalf of  the other creditors.   See N.H. Rev.  Stat. Ann.  
                                              ___

            382-A:9-504(2)  (absent  agreement  "the  secured  party must

            account  to the  debtor for  any surplus");  Contrail Leasing
                                                         ________________

            Partners, Ltd.  v. Consolidated Airways, Inc.,  742 F.2d 1095
            ______________     __________________________

            (7th Cir. 1984).

                 In this case, the  $3,400,000 offer by GTI was  for more

            than  the  balance  owed the  bank.    If the  bank  had been

            seriously concerned about the reliability of the offer or had

            feared  that customers  would desert  Unitex before  the deal

            could be completed, it might have rejected GTI's proposal  on

____________________

                 4Apparently in the event Unitex' technology proved to be
            rapidly outmoded by developments in computerization.  In this
            respect, both GTI and Indian Head apparently were deceived in
            thinking that Unitex had a bright future.

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those grounds.  But what happened  strongly suggests not that

            the bank doubted  that it could recover its  full outstanding

            debt but  that it became  interested in obtaining  even more.

            But  anything more belonged to  the creditors and  not to the

            bank.   The jury probably thought that the bank's conduct was

            deplorableandin nosensea"commercially reasonable"disposition.

                 In fairness to Indian  Head, we note that there  is also

            some evidence consistent with its  position that it acted  in

            good faith.  For example, notes made by Cote say that on June

            6 Cote spoke to Parker Benjamin "to clarify" its expectations

            and was told that  there was "a high probability"  of raising

            the  money  but  that  the financing  depended  on  verifying

            Unitex'  assets and this would  take three weeks.   Still, it

            was  up the jury to weigh the conflicting inferences from all

            the evidence and to conclude, as it apparently did, that Cote

            was protecting the record after the decision had been made.

                 2.   The question  whether evidence is  adequate to show

            damages is closer.   In  this case, the  district court  held

            that  New Hampshire law required  the damages be  proved to a

            "reasonable certainty."  The district court concluded that no

            reasonable  jury could  find it  reasonably certain  that GTI

            would  have  been  able  to  finance  and  carry  through the

            transaction  if   its  offer  had  been   accepted.    Parker

            Benjamin's expressions of confidence  "that [the] deal can be

            done and rather quickly" were, the court found, "nothing more

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than speculation . . . ."     Under  New  Hampshire law,  the

            debtor  may  recover as  damages  "any  loss  caused" by  the

            secured party's  unreasonable disposition of  the collateral.

            N.H. Rev. Stat. Ann. 382-A:9-507.  See A to Z Rental, Inc. v.
                                               ___ ___________________

            Wilson,  413  F.2d 899  (4th  Cir.  1969) (damages  based  on
            ______

            rejected offer).  In  commercial litigation in New Hampshire,

            as  elsewhere, the  burden of  proof of  damages is  upon the

            claimant who must show by  "a preponderance" of the  evidence

            both the extent and amount of such damages.5   Our concern is

            not with  these propositions,  but with the  district court's

            further conclusion  that New Hampshire law  required that the

            damages be established with "reasonable certainty."

                 The district court  borrowed its "reasonable  certainty"

            standard  from  two  New  Hampshire cases  that  impose  this

            requirement  on the computation of lost  profits in breach of

            contract  cases.    Great  Lakes  Aircraft  Co.  v.  City  of
                                ___________________________      ________

            Claremont, 608 A.2d 840 (N.H. 1992); Hydraform Products Corp.
            _________                            ________________________

            v. American Steel, 498 A.2d 339 (N.H. 1985).  These cases are
               ______________

            ones  in which the claimant argued that a business would have

            been profitable in a  specified amount but for the  breach of

            contract or  other wrongful conduct  of the wrongdoer.   Lost

____________________

                 5See Baley v. Sommovigo,  631 A.2d 913, 917 (N.H.  1993)
                  ___ _____    _________
            ("The  party seeking  to recover  damages has  the burden  of
            proving by a  preponderance of  the evidence  the extent  and
            amount  of such damages."); Grant v. Town of Newton, 370 A.2d
                                        _____    ______________
            285,  287 (N.H.  1977) (claimant  must show  by preponderance
            causation of "and extent and amount of such damages.").

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profits of this kind are often quite speculative; they depend

            upon how  a  variety  of  variables  affecting  a  stream  of

            revenues and expenses would have played out over time, if the

            wrongdoing had not occurred.

                 Our  case does  not require  such a  complex conjectural

            judgment:    the  only   question  is  whether  the  specific

            transaction  in question--a  $3,400,000  purchase  of  Unitex

            assets by GTI in or around June 1985--would have gone forward

            if  the  bank  had   pursued  this  transaction  rather  than

            diverting its efforts to securing an equity stake.  This is a

            matter  of prophesy,  to be  sure, but  we see  no reason  in

            policy and nothing in  the New Hampshire case law  to suggest

            that the trustee needed to show anything more than the "more-

            likely-than-not"   prospect   usually   associated   with   a

            preponderance of the evidence standard.6

                 The New  Hampshire  UCC pertinently  provides  that  its

            remedies shall be liberally administered "to the end that the

            aggrieved party  may be put in  as good a position  as if the

            other  party  had fully  performed"  and the  comment  to the

            provision  notes:   "Compensatory damages  are often  at best

            approximate:     they  have   to  be  proved   with  whatever

            definiteness  and accuracy  the facts  permit, but  no more."

____________________

                 6The phrase "lost  profits" is too mutable  to provide a
            hard-edged  test for when  reasonable certainty  is required;
            but we  doubt that  the  label well  suits the  claim of  the
            trustee to  have an estate  asset sold in  good faith for  as
            close to fair value as circumstances permit.

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N.H. Rev. Stat.    382-A:1-106(1)  and comment  1.   Finally,

            even  if "reasonable  certainty"  were the  standard in  this

            case, there is marked inclination to relax the test where the

            defendant's conduct is willful.  See A. Farnsworth, Contracts
                                             ___                _________

              12.15, at 920-21 (2d ed. 1990).

                 Resolving   credibility   issues   and  all   reasonable

            inferences in favor of the jury verdict, see Putnam Resources
                                                     ___ ________________

            v. Pateman, 958 F.2d  448, 459 (1st Cir. 1992), we think that
               _______

            the  evidence is adequate to support the jury's view that the

            GTI transaction would more likely than not have succeeded but

            for the bank's misconduct.   In considering whether financing

            would have been secured, the jury was entitled to rely on the

            rather   general   but  also   quite   confident  predictions

            attributed to GTI's investment banker.  These statements were

            hearsay  because they appeared in  the form of  notes made by

            the  bank representative who  conferred with Parker Benjamin.

            But  there was  no objection  to admission  of the  notes and

            recorded statements may therefore be considered for the truth

            of  the matter asserted.  For all  we know, a Parker Benjamin

            witness might  have been  summoned if an  objection had  been

            made.

                 Of course, such predictions  would carry far more weight

            if  the  Parker  Benjamin  representative  had provided  more

            detail to underpin his conclusion--for example, by describing

            preliminary  efforts  to   raise  the  money,   similar  past

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transactions, or  the commercial  promise of Unitex.   Still,

            experts are allowed to testify to their bare conclusions, see
                                                                      ___

            Fed.  R. Evid.  703, and  the bare  conclusion here  is quite

            favorable to the trustee.  Further, the bank's action turning

            down the  $3,400,000 offer  in favor  of retaining  an equity

            stake might be  viewed as  a judgment  by the  bank that  the

            assets were  worth  at  least $3,400,000  and,  if  the  bank

            thought so, the jury might suppose that  potential lenders to

            GTI would reach the same conclusion.

                 The district  court expressed doubt  that the investment

            banker could  make a  well grounded judgment  about financing

            when GTI itself had still not received all of the information

            about  Unitex that  GTI wanted from  the bank.   Based on the

            testimony, there is no reason to believe that GTI was seeking

            anything  more  than   detailed  verification  about  matters

            represented in the offering  "package" that the bank provided

            to potential bidders.   The  mere fact that  GTI was  seeking

            additional information or  confirmation is not  itself enough

            to show  that Parker  Benjamin's prediction of  financing was

            irresponsible.

                 The bank points to a  number of other uncertainties that

            attended the GTI  proposal.   In addition to  GTI's need  for

            financing,  GTI requested  a substantial  period in  which to

            evaluate Unitex; the question  of management of Unitex during

            the transition and before closing remained to be settled; and

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the  issue  of   the  nonrefundable  downpayment  was   never

            resolved.  Fleet's brief tries to develop these uncertainties

            to  furnish sound reasons why Indian Head would in good faith

            have been justified in rejecting GTI in favor of Chorus.

                 The  jury, however,  was entitled  to conclude  that the

            bank  did not  make  such  a  good  faith  judgment  but  was

            enthusiastic about  the GTI proposal until  its attention was

            diverted  by the lure of improper gain.  GTI's own enthusiasm

            for  the  transaction is  unquestioned,  and  its efforts  to

            secure financing  were underway and  had been  optimistically

            assessed.  Thus, a  reasonable jury could have found  that it

            was  more  likely  than  not  that  the  GTI  proposal  would

            ultimately have been accepted, and financing for it achieved,

            but for the bank's bad faith rejection of the GTI proposal.
            _______

                 The  judgment of the district court  is reversed and the
                                                         ________

            matter  is remanded for  further proceedings  consistent with
                       ________

            this opinion.

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