
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
