USCA1 Opinion
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
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No. 93-1154
STEPHEN DARR, TRUSTEE OF COLUMBUS MORTGAGE AND
LOAN CORPORATION OF RHODE ISLAND, INC.,
Plaintiff, Appellee,
v.
JOSEPH R. MURATORE, SR., ET AL.,
Defendants, Appellants.
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APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND
[Hon. Ronald R. Lagueux, U.S. District Judge]
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Before
Cyr and Stahl, Circuit Judges,
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and Fuste,* District Judge.
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Paul J. Bogosian, Jr. with whom Hodosh, Spinella & Angelone were
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on brief for appellants.
Joseph Avanzato with whom John F. Bomster and Adler Pollock &
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Sheehan Incorporated were on brief for appellee.
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November 1, 1993
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*Of the District of Puerto Rico, sitting by designation.
FUSTE, District Judge. The Trustee for a bankrupt
FUSTE, District Judge.
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mortgage lending institution brought an action against the former
chairman and chief executive officer of the company, his wife,
who was also an officer and director of the bankrupt lender, and
three separate real estate and development corporations
controlled by the couple. The Trustee's action sought to recover
over two million dollars allegedly owed to the bankrupt lending
institution by defendants. The Trustee contends that defendants
first, improperly created the debt, second, fashioned a favorable
calculation of the amount due, and third, incorrectly declared
the loans repaid through a questionable real estate conveyance.
The Trustee claims that defendants violated their fiduciary duty
to the institution and to the lender's numerous debenture
holders.
Defendants argue that no fiduciary duty was
transgressed, and counter that the Trustee committed waste and
failed to mitigate damages to the bankrupt estate by allowing
foreclosure on the properties which allegedly were conveyed in
order to satisfy the debt. They also take issue with the method
of debt calculation utilized by the district court. In addition,
defendants contend that they are entitled to a significant
reduction of any outstanding debt because of the equity in, and
rental income from, the conveyed real estate, and to a further
reduction of the debt because of the Trustee's alleged failure to
prevent the foreclosures of the properties. Finally, defendants
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argue that they should receive a setoff of any debt owed to
plaintiff as a result of various unrelated expenses allegedly
advanced by defendants to the plaintiff.
In the instant appeal, defendants challenge two
decisions of the district court: A grant of partial summary
judgment with respect to the total remaining debt owed by
defendants, and the court's certification of final judgment. We
now affirm the district court's partial summary judgment and hold
affirm
that final judgment certification was justified. Defendants'
claims of payment through property transfer, waste, failure to
mitigate, setoff, and miscalculation of debt are unavailing as a
matter of law.
I.
I.
Background
Background
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From August 1961 to December 1991, Defendant-Appellant
Joseph R. Muratore, Sr. ("Mr. Muratore") owned and controlled a
mortgage lending institution, Columbus Mortgage & Loan
Corporation of Rhode Island, Inc., as well as its wholly-owned
real estate development corporation subsidiary, Columbus
Development Corporation. The nature of the business of Columbus
Mortgage was to serve as a mortgage lending firm specializing in
residential real estate loans secured by first and second
mortgages on real estate. At some point, however, Columbus
Mortgage entered into the business of making unsecured loans in
its real estate dealings, financing them in large part through
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the sale of debentures.1 Columbus Mortgage eventually took its
business a step further and sold a second generation of
debentures to refinance the first generation of maturing
obligations. As of December 31, 1989, Columbus Mortgage had
$4,400,139 in outstanding debentures. It is undisputed that Mr.
Muratore owed a fiduciary duty to the debenture holders, as well
as to Columbus Mortgage. In February 1991, Columbus Mortgage
declared bankruptcy, acknowledging its inability to repay its
debts in full, including its debentures.
Mr. Muratore and his wife, Defendant-Appellant Rose E.
Muratore ("Mrs. Muratore"), controlled other Rhode Island
corporations, officially unrelated to Columbus Mortgage, that,
inter alia, were in the business of selling and developing real
estate: Defendants-Appellants Muratore Agency, Inc. ("Muratore
Agency"), Muratore Realty Corp. ("Muratore Realty"), and Shawomet
Holding Associates ("Shawomet") (collectively referred to as the
"Separate Muratore Companies"). We refer, collectively, to all
Muratore persons and Muratore corporations as the "Muratore
Defendants".
There is no doubt that Columbus Mortgage provided
several unsecured loans to the Separate Muratore Companies,
drawing funds from the pool of money accumulated by the selling
of debentures to citizens of Rhode Island. These loans were by
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1"Debentures are unsecured debt, as opposed to bonds, which
are secured by the assets of the issuing company." In re Worlds
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of Wonder Sec. Litigation, 814 F.Supp. 850, 854 n.2 (N.D.Cal.
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1993). See also SEC v. Howatt, 525 F.2d 226, 229 (1st Cir.
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1975).
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no means insignificant. In fact, loans to the Separate Muratore
Companies, most or all of which were unsecured, totaled
$2,044,313 as of June 30, 1989, more than half of Columbus
Mortgage's total assets of $3,973,791 at that time. In addition,
the record strongly suggests that Columbus Mortgage's funds were
used to pay miscellaneous personal debts of Mr. Muratore. The
record contains no proof of repayment from Mr. Muratore to
Columbus Mortgage. The bottom line is that the Muratore
Defendants claim that their total indebtedness was approximately
$900,000 in December 1990, and $1,200,000 in 1992. Plaintiff-
Appellee Stephen Darr, Chapter 11 Bankruptcy Trustee of Columbus
Mortgage ("Trustee"), argues that the defendant's obligation was
over $2,000,000.
The Muratore Companies paid off some portion of the
debt in cash. However, the payments were applied to principal
rather than to accumulated interest. The Muratore Defendants
claim that their remaining debt to Columbus Mortgage was
discharged in full on or about December 15, 1990, when two pieces
of real estate of disputed equity value were conveyed from the
Muratore Defendants to Columbus Mortgage.2 In an affidavit,
Mr. Muratore, an experienced appraiser in his own right, affirmed
under oath that at the time of the conveyance he believed that
the fair market value of the properties was $2,000,000, and that
approximately $800,000 were still owed on the properties'
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2The two properties conveyed by the Muratore Defendants to
Columbus Mortgage are located at 1845 Post Road, Warwick, Rhode
Island, and 275-277 Atwells Avenue, Providence, Rhode Island.
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mortgages. Thus, according to Mr. Muratore, the equity value of
the properties was approximately $1,200,000. In the affidavit,
Mr. Muratore also referred to an independent aggregate appraisal
of the properties, before encumbrances, of $1,660,000, meaning
that as of December 15, 1990 the equity in the properties was
approximately $860,000. Scanning the record, we only find an
independent appraisal of the Post Road Property, valued at
$856,000 as of December 19, 1992. The Trustee challenges the
Muratore Defendants' valuation of the property, contending that
given the unpaid portion of the mortgages on the two properties,
their aggregate equity value was less than $100,000.
The Muratore Defendants claim that the Trustee
committed waste by failing to refinance the properties' mortgages
and allowing foreclosure, causing the estate to lose whatever
equity remained. Columbus Mortgage, through the Trustee, argues
that it permitted foreclosure on the properties pursuant to 11
U.S.C. 362 because they lacked equity value.3 The Muratore
Defendants contend that they deserve a reduction of the amount
owed to Columbus Mortgage equal to the sum of the equity in the
properties, the accrued rental income derived from the properties
before foreclosure, and funds owed to the Separate Muratore
Companies by Columbus Mortgage stemming from transactions
unrelated to the debt at issue in this case.
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311 U.S.C. 362 provides for an automatic stay on the
property of an estate which is undergoing voluntary or
involuntary bankruptcy. However, under 362(d)(2)(A), a party
in interest may obtain relief from the stay if the debtor has no
equity in the property.
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Two months after the conveyance of the properties, on
February 15, 1991, Columbus Mortgage, under the guidance of
Mr. Muratore, filed a voluntary Chapter 11 bankruptcy petition
with the United States Bankruptcy Court for the District of Rhode
Island. 11 U.S.C. 1121. At first, Columbus Mortgage operated
as a debtor in possession; however, the creditors' committee
brought an adversary proceeding in the bankruptcy court for the
purpose of collecting money damages from the Muratore Defendants.
In early April 1992, the adversary proceeding was withdrawn to
the United States District Court for the District of Rhode
Island. Soon thereafter, Stephen Darr was appointed Columbus
Mortgage's Bankruptcy Trustee. The Trustee, substituted for the
creditors' committee, continued a six-count action to recover
damages allegedly sustained by the estate and supposedly caused
by the Muratore Defendants.4
On October 14, 1992, the Trustee filed a Fed. R. Civ.
P. 56 motion for partial summary judgment and for entry of final
judgment on Count III of the first amended complaint alleging a
debt due and owing. Fed. R. Civ. P. 54(b). On January 12, 1993,
the district court granted the Trustee's motion and entered final
judgment on Count III against the Muratore Defendants in the
amount of $2,146,034.24. The district court concluded that the
Muratore Defendants were in fact one entity, one corpus, and
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4The Trustee's six-count action includes the following
allegations: Count I, Breach of Fiduciary Duty; Count II,
Conversion; Count III, Debt Due and Owing; Count IV, Breach of
Contract, and Count V, a second Breach of Contract.
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ordered final judgment on Count III because there was "no just
reason for delay." The district judge's primary rationale for
Rule 54(b) certification was that the Muratore Defendants' assets
available to settle the claim were barely sufficient to pay the
debt and that relief should be granted to the debenture holders
as soon as possible. The court noted that entry of judgment on
Count III would probably cause the other counts to become moot
because of the limited resources of the Muratore Defendants.
II.
II.
Summary Judgment
Summary Judgment
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In order to review the district court's certification
of summary judgment on Count III of the adversary proceeding
against Mr. Muratore, we must decide whether the district court's
ruling fulfilled the requirements for summary judgment and Rule
54(b) certification.5
A. Standard for Review
A. Standard for Review
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Our review of summary judgment decisions is plenary.
Griggs-Ryan v. Smith, 904 F.2d 112, 115 (1st Cir. 1990). Summary
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judgment is appropriate "if the pleadings, depositions, answers
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5We do not disturb the district court's determination that
the various actorswho constitute theMuratore Defendants arealter-
egos of one another. That finding by the district court has not
been seriously challenged on appeal and rests on sound legal
principles. See Oman Int'l Fin. Ltd. v. Hoiyong Gems Corp., 616
___ __________________________________________
F. Supp. 351, 363-66 (D.R.I. 1985) (discussing law of corporate
collectivity) (affirmatively cited in United Elec., Radio and
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Mach. Workers of America v. 163 Pleasant Street Corp., 960 F.2d
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1080, 1096 (1st Cir. 1992)); cf. Vucci v. Myers Bros. Parking
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Sys., 494 A.2d 530, 535-36 (R.I. 1985). Thus, we will discuss
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the Columbus Mortgage debt as an obligation of the aggregate of
defendants without segregating loans among the particular
Muratore entities.
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to interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to any
material fact and that the moving party is entitled to a judgment
as a matter of law." Fed. R. Civ. P. 56(c). In applying this
standard to the instant case, we view the record in the light
most favorable to the nonmovants, the Muratore Defendants. Bank
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One Texas, N.A. v. A.J. Warehouse, Inc., 968 F.2d 94, 97 (1st
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Cir. 1992). A nonmovant, however, bears the burden of placing at
least a single material fact into dispute after a moving party
offers evidence of the absence of a genuine issue. See Jaroma v.
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Massey, 873 F.2d 17, 20 (1st Cir. 1989) (per curiam); White v.
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Hearst Corp., 669 F.2d 14, 17 (1st Cir. 1982). "[T]here is no
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issue for trial unless there is sufficient evidence favoring the
nonmoving party for a jury to return a verdict for that party."
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). A
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nonmoving party has a duty to oppose a cogent summary judgment
motion. Id.
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B. Discussion
B. Discussion
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Defendants assert that there exist genuine issues of
material fact regarding the debt owed to Columbus Mortgage which
preclude a grant of summary judgment. In order to address these
allegations, we must examine whether the real estate conveyance
was a valid debt payment, whether the defendants were entitled to
any reductions of the debt, and whether it was correct for the
defendants to apply payments to the principal rather than the
interest component of the debt.
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1. Were Real Estate Conveyances Debt Payments?
1. Were Real Estate Conveyances Debt Payments?
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The record clearly demonstrates that the Muratore
Defendants owe Columbus Mortgage a significant sum of money.
Defendants admit to a certain amount of debt to Columbus
Mortgage, but argue that prior to filing for Chapter 11
bankruptcy, two valuable properties were conveyed from the
Separate Muratore Companies to Columbus Mortgage in partial
satisfaction of the admitted debt.
Regardless of the fiduciary propriety of the real-
estate- for-debt transaction,6 Mr. Muratore admitted before the
district court that the obligation created by his arrangement of
Columbus Mortgage loans to the Separate Muratore Companies was a
money debt. There was no agreement that the debt could be repaid
through a transfer of properties chosen by the debtor. Nor was
there evidence of custom from which such an agreement could be
implied. Since loans are to be normally repaid with money and
not with houses or any other less liquid type of asset, even when
viewing the record in the light most hospitable to the Muratore
Defendants we find untenable the argument that the real-estate
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6This court finds questionable that the Separate Muratore
Companies attempted to repay a seven-digit debt through a
property transfer at the direction of Mr. Muratore when, two
months later, the creditor, Columbus Mortgage, voluntarily filed
a Chapter 11 bankruptcy petition also by the hand of Mr.
Muratore. The facts undisputedly show that Mr. Muratore was
effectively in control of both the creditor and debtor
institutions involved in these transactions. It is evident that
a large cash debt was supposedly satisfied at a time and under
circumstances which greatly benefitted the Muratore Defendants
and harmed the soon-to-be declared bankrupt company controlled by
Mr. Muratore, working to the detriment of the unsecured creditors
of that company.
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transfer satisfied the debt. We agree with the district court
that the debt and the real estate transaction have separate
identities. No genuine factual dispute revolves around the issue
of loan satisfaction by the real estate conveyance. Without
prejudice to the bankruptcy court's final assessment of any claim
by the Muratore Defendants arising from the real estate transfer,
the money debt remains and the district court properly decided to
enforce the payment of the same. We now turn to a determination
of the extent of the debt.
2. Waste, Failure to Mitigate, and Setoff
2. Waste, Failure to Mitigate, and Setoff
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The district court held as a matter of law that what
the Muratore Defendants have defined as waste and failure to
mitigate are unavailing theories as they pertain to the motion
for summary judgment on Count III. We agree. Both the waste and
failure to mitigate theories operate on the presumption that the
real-estate conveyance was a payment toward the Muratore
Defendants' debt. The district court found that the real-estate
conveyance cannot rightly be deemed the equivalent of a money
payment on the Muratore Defendants' debt and, therefore, any
credit or complaint relating to the transferred properties is
entirely separate from the debt owed by defendant, and may be
brought up before the bankruptcy court. The $18,000 in rental
income that the bankrupt estate supposedly received due to its
possession of the properties is no different.
The question of setoff is different than those of
waste and failure to mitigate, in that defendants' theory of
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setoff involves debts not dependant on the real property
conveyance. The Muratore Defendants allege a right to a setoff
of $418,046.25 under 11 U.S.C. 553,7 citing evidence of
indebtedness carried on the ledger cards of Columbus for wages
paid by the Muratore Defendants to employees of Columbus, and for
rental obligations due from Columbus.
Section 553 does not create new substantive law, but
incorporates in bankruptcy the common law right of setoff, with a
few additional restrictions. U.S. ex rel. I.R.S. v. Norton, 717
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F.2d 767, 772 (3d Cir. 1983). The right of setoff allows parties
that owe mutual debts to each other to assert the amounts owed,
subtract one from the other, and pay only the balance. In re
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Bevill, Bresler & Schulman Asset Mgmt. Corp., 896 F.2d 54, 57 (3d
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Cir. 1990). However, allowing setoff undermines a basic premise
of bankruptcy law, equality among creditors, by "permit[ting] a
creditor to obtain full satisfaction of a claim by extinguishing
an equal amount of the creditor's obligation to the debtor . . .
in effect, the creditor receives a 'preference'." Id. (quoting
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In re Braniff Airways, Inc., 42 B.R. 443, 448 (Bankr. N.D. Tex.
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1984)). As a result, setoff in the context of a bankruptcy is not
automatic. Under section 553, debts cannot be setoff unless they
are mutual. Mutuality requires that the debts "be in the same
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7In pertinent part, 11 U.S.C. 553 provides: "[T]his title
does not affect any right of a creditor to offset a mutual debt
owing by such creditor to the debtor that arose before the
commencement of the case under this title against a claim of such
creditor against the debtor that arose before the commencement of
the case." 11 U.S.C. 553(a) (1993).
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right and between the same parties, standing in the same
capacity." 4 Collier on Bankruptcy 553.04 (15th ed. 1992).
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Where the liability of the party seeking the setoff arises from
breach of a fiduciary duty, mutuality of debts does not exist and
therefore no setoff is available. Id. See also In re Drexel
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Burnham Lambert Group, Inc., 113 B.R. 830, 847-48 (Bankr.
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S.D.N.Y. 1990); In re Esgro, Inc., 645 F.2d 794, 797 (9th Cir.
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1981) (discussing precursor to section 553); Allegaert v. Perot,
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466 F.Supp. 516, 518 (S.D.N.Y. 1978).
If the district court correctly found that Mr. Muratore
breached his fiduciary duty to Columbus Mortgage by causing the
unsecured loans to the Muratore Defendants to be made, then the
debts of the two parties are not mutual and no setoff is allowed
as a matter of law. The district court determined that the
Muratore Defendants violated their fiduciary responsibilities and
assisted in the bankruptcy of Columbus Mortgage by taking actions
to their benefit and against the interests of the debenture
holders. The Muratore Defendants argue that the loan
transactions carried on between Columbus Mortgage, on the one
side, and the Separate Muratore Companies and the Muratores, on
the other, were honest, arm's-length business dealings.
Defendants cite their accounting documentation as proof of the
legitimacy of the loans and terms at issue. After reviewing the
record, we cannot find error in the district court's
determination that the Muratore Defendants seriously breached
their fiduciary obligations. This breach of fiduciary duty
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created a lack of mutuality between the unsecured loans which
were made to the Muratore Defendants by Columbus Mortgage and any
money advanced to Columbus Mortgage by the Muratore Defendants.
As a result, there is no genuine issue of material fact regarding
the propriety of any setoff of the debt owed by the Muratore
Defendants.
3. Applying Cash Payments to Interest
3. Applying Cash Payments to Interest
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Defendants next argue that summary judgment was
improper because of a dispute about the effect of partial money
payments on their debt obligations. Defendants claim that the
amount owed is lower than the trial court found because the
partial payments were to be used to reduce the principal (without
capitalizing unpaid interest) rather than first paying
accumulated interest.8 The district court concluded that
repayment should have been on an interest-first basis and found
that the Separate Muratore Companies owed substantially more than
previously suggested by the Columbus Mortgage account ledgers.
The Muratore Defendants argue that the district court did not
have sufficient evidence to decide that the repayment method
should have been on an interest-first basis.
It is undisputed that the record contains no express
agreement detailing the method for repaying the loans. Sample
promissory notes used by Columbus Mortgage suggest that the
standard practice for Columbus Mortgage was payment of interest
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8By allowing the payment of principal first, the Muratore
Defendants were able to save over $600,000 in interest on their
loans.
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first, with the remainder of any given payment going toward
decreasing the principal. Defendants did not place into the
record any promissory notes allowing payment of principal first,
then interest. Defendants rely primarily on unsubstantiated
statements and assertions that question the evidence submitted by
the Trustee, and fail to present hard evidence to cast doubt on
the Trustees' or the district court's calculations of the
outstanding obligation. Defendants assert that such calculations
were done incorrectly and were based on incorrect assumptions,
but provide no evidenced alternatives to support these
assertions. In short, Defendants offer no "significant probative
evidence" that creates a genuine dispute about the terms of
repayment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249
________________________________
(1986).
We note further that the dispute over the terms of
repayment ultimately presents not a factual question for a jury
but a legal question for the court. While Rhode Island law is
unclear on the subject, the normal rule throughout the nation is
that, absent an express agreement to the contrary, there is a
presumption that loan payments are made to interest first and
then principal.9 See In re Department of Energy Stripper Well
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Exemption Litigation, 944 F.2d 914, 916 (Temp. Emer. Ct. App.
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9Some courts have referred to this principle as the "'United
States Rule' on partial payments." Shutts v. Phillips Petroleum
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Co., 567 P.2d 1292, 1321 (Kan. 1977), cert. denied., 434 U.S.
___ _____________
1068 (1978). The rule has ancient roots; it was first
acknowledged by the Supreme Court over a century and a half ago.
See Story v. Livingston, 38 U.S. 359, 371 (1839).
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1991); Bonjorno v. Kaiser Aluminum & Chemical Corp., 865 F.2d
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566, 576 (3d Cir. 1989), aff'd in part and rev'd in part on other
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grounds, 494 U.S. 827 (1990); Devex Corp. v. General Motors
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Corp., 749 F.2d 1020, 1025 n.6 (3d Cir. 1984), cert. denied, 474
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U.S. 819 (1985); Nat G. Harrison Overseas Corp v. American Barge
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Sun Coaster, 475 F.2d 504, 507 (5th Cir. 1973); Whiteside v.
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Washington Loan and Trust Co., 95 F.2d 83, 87 (D.C. Cir. 1937);
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Torosian v. National Capital Bank, 411 F. Supp. 167, 173 (D.D.C.
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1976); Shutts v. Phillips Petroleum Co., 567 P.2d 1292, 1321
___________________________________
(Kan. 1977), cert. denied, 434 U.S. 1068 (1978); Landess v.
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State, 335 P.2d 1077 (Okla. 1958); see also 45 Am. Jur. 2d,
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Interest and Usury, 99, pp. 88-89; 47 C.J.S., Interest, 66,
pp. 72-73.
As the United States Rule contemplates that loan
repayments ordinarily are to be credited first to interest,
absent a contrary agreement, we are not inclined to conjure a
different rule under Rhode Island law. Moreover, sample
promissory notes, testimony, and the national custom of crediting
loan repayments first to interest, all support the district
court's conclusion. Since there was no genuine factual dispute
about the property transfer, the alleged reductions or the manner
of debt calculation, we hold that the district court correctly
calculated the outstanding debt at $2,146,034.24.
III.
III.
Entry of Final Judgment
Entry of Final Judgment
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A. Standard for Review
A. Standard for Review
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A district court "may direct the entry of a final
judgment as to one or more but fewer than all of the claims or
parties only upon an express determination that there is no just
reason for delay and upon an express direction for the entry of
judgment." Fed. R. Civ. P. 54(b). Orders pursuant to Rule 54(b)
are reviewable by the Court of Appeals for abuse of discretion by
the trial court. Sears, Roebuck & Co. v. Mackey, 351 U.S. 427,
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437 (1956); Ginett v. Computer Task Group, Inc., 962 F.2d 1085,
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1092 (2d Cir. 1992). This court, however, has limited the Mackey
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holding to cases like the instant one in which a Rule 54(b)
certificate has been granted by the district court. Makuc v.
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American Honda Motor Co., 692 F.2d 172, 173 (1st Cir. 1982).
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In Spiegel v. Trustees of Tufts College, 843 F.2d 38
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(1st Cir. 1988), we held that the district court's certification
of a final judgment pursuant to Rule 54(b) must satisfy certain
criteria. First, the judgment must have the "requisite aspects
of finality." Id. at 43 (citing Morrison-Knudsen Co. v. Archer,
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655 F.2d 962, 965 (9th Cir. 1981)). Second, the district court
must have made its decision to certify a final judgment while
viewing all claims and parties in perspective. See id. (citing
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Pahlavi v. Palandjian, 744 F.2d 902, 904 n.5 (1st Cir. 1984), and
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quoting Curtiss-Wright Corp. v. General Elec. Co., 446 U.S. 1, 10
_________________________________________
(1980)). Third, we examine the trial judge's "assessment of the
equities" regarding any justifiable reasons for delay. Spiegel,
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843 F.2d at 43. This process is necessarily case-specific and
requires an assessment of the entire litigation and an analysis
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of factors which suggest reasons to relax the usual prohibition
against piecemeal appellate review.10 "If the district court
has fulfilled its responsibility of enlightening us as to the
basis for certification . . . then we give 'substantial
deference' to the court's exercise of its discretion." Id.
__
(quoting Pahlavi, 744 F.2d at 904 n.5).
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B. Discussion
B. Discussion
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1. Two-Pronged Threshold Test
1. Two-Pronged Threshold Test
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The first prong of our inquiry is whether judgment on
Count III, alone, satisfies the requirement of finality. Count
III of the Trustee's first amended complaint simply asserts an
amount of money owed to the bankrupt estate by the Muratore
Defendants. There can be little doubt that entering judgment on
Count III provides the requisite quantum of finality. See
___
Spiegel, 843 F.2d at 43. If a certain sum of money is deemed to
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be owed to a bankrupt estate, a decision that recognizes the debt
and orders payment is a coherent and final disposition. The debt
is either owed or it is not.
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10Factors analyzed by other courts in evaluating Rule 54(b)
motions include (1) the relationship between the adjudicated and
non-adjudicated claims, (2) the possibility that the need for
review might be mooted by future developments in the district
court, (3) the possibility that the same issue might have to be
considered again by the reviewing court, (4) the presence or
absence of a claim or counterclaim which might result in a setoff
against the judgment which is to be made final, (5) miscellaneous
considerations such as delay, economic and solvency
considerations, efficiency, frivolity of competing claims, and
expense. Allis-Chalmers Corp. v. Philadelphia Electric Co., 521
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F.2d 360, 364 (3d Cir. 1975).
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Second, we verify whether the trial judge considered
the interrelatedness of claims and the overall context of the
case before him. See Spiegel, 843 F.2d at 43 (citing Pahlavi,
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744 F.2d at 904 n.5, and quoting Curtiss-Wright Corp., 446 U.S.
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at 10). Here, the district court observed that a grant of
partial summary judgment would cause the other counts to become
moot, since the effect of the satisfaction of the Count III
judgment would be to deplete the Muratore Defendants of their
assets. The district court was explicitly referring to a
contextual analysis. The district judge found that the assets of
defendants are not sufficient to satisfy any further money
claims. Thus, we hold that the second Rule 54(b) criterion was
met when the district judge contemplated his action pertaining to
Count III with a view to the other five counts and not in an
abstract or myopic fashion.
2. Equities
2. Equities
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Moving to the heart of this analysis, we examine
whether the trial judge abused his discretion in determining that
there was "no just reason for delay," Fed. R. Civ. P. 54(b), in
light of the futility of the defendants' claims regarding
reductions in the amount of the debt and the time-sensitive
position of the Trustee and debenture holders.11
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11An additional requirement for a proper certification is
that the district judge must have made an "express direction for
the entry of judgment." Fed. R. Civ. P. 54(b). This requirement
was obviously met by the judge's oral and written directions.
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In the usual case, if there is a possibility of a later
setoff of a money debt, Rule 54(b) certification of the debt
would be improper because of the inefficient and inequitable
result which would occur if one party were allowed to collect
money which may have to be paid back to the other party when the
remaining litigation is completed. Pahlavi, 744 F.2d at 904.
_______
However, that is not the case here. No setoff or reduction of
the Muratore Defendants' debt could be allowed as a matter of
law. The claimed reductions relating to the transferred property
could not be applied to reduce the money debt. The amount
allegedly owed by Columbus Mortgage for wages and rent cannot be
setoff because the fiduciary relationship between the two parties
renders the debts non-mutual. Here then, we do not face a
situation where the Muratore Defendants will pay Columbus
Mortgage only to have Columbus Mortgage return the money when the
remaining claims are decided. Rather, the Muratore Defendants
will have to join the other unsecured creditors and proceed
through the Bankruptcy Court in an attempt to recover any amount
allegedly owed by Columbus Mortgage. The claimed setoffs present
no just reason for delay.
The district court determined that certification was
proper because the Trustee and debenture holders would be harmed
with the postponement of any appeal. The trial court, in
exercising its discretion in the Rule 54(b) context, may take
time and value into consideration in finding delay unreasonable,
particularly in a case of failure to meet basic fiduciary
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responsibilities. Cf. Curtiss-Wright Corp., 446 U.S. 1
___ ______________________
(consideration of time-value of money). While there is an
economic preference for all claims in a particular case to move
to the appeal stage together, a demonstration of clear injustice
or hardship resulting from delaying a final judgment on a
particular question may justify certification. Since the
district court in the instant case considered the appropriate
criteria in a reasonable and coherent manner, "we conclude that
[the court] did not abuse its discretion . . . ." Curtiss-Wright
______________
Corp., 446 U.S. at 12; see Spiegel, 843 F.2d 38; see also Pierce
_____ ___ _______ _________ ______
v. Underwood, 487 U.S. 552, 562 (1988). There was "no just
_____________
reason for delay." Fed. R. Civ. P. 54(b).
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IV.
IV.
Conclusion
Conclusion
__________
We hold that there was no genuine dispute of material
fact concerning the district court's calculation of the debt owed
by the Muratore Defendants to Columbus Mortgage and its Trustee
in the amount of $2,146,034.24. Fed. R. Civ. P. 56(c). The
attempt to satisfy the debt through a transfer of real estate was
unavailing because there is no evidence of an arrangement between
the parties whereby real estate conveyances were to be considered
payments on the outstanding debt. No reduction of the debt by
funds related to the properties can be granted, because the
property itself was not a repayment for the loans made to the
Muratore Defendants. Because defendants created the loans in
violation of the fiduciary duty owed to the plaintiff, no setoff
for other alleged debts owed by plaintiff to defendants is
available. Furthermore, the cash payments on the debt were
incorrectly applied to the principal rather than the interest,
and therefore the sum calculated by the district court was
correct. We have examined the record in the light most favorable
to defendants, but we are unwilling to go further and take the
leaps of faith suggested by the Muratore Defendants. Finally, we
hold that entry of final judgment on Count III pursuant to Rule
54(b) was well within the sound discretion of the district court.
Fed. R. Civ. P. 54(b). We, therefore, affirm the district
affirm
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court's summary judgment on Count III.
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