
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.                                         -2-                                         -2-                 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                                         -3-                                         -3-            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.                                         -4-                                         -4-                 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                                         -5-                                         -5-            $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.                                         -6-                                         -6-                 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).                                         -7-                                         -7-                 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,                                         -8-                                         -8-            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.                                         -9-                                         -9-            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                                         -10-                                         -10-            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.").                                         -11-                                         -11-            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.                                         -12-                                         -12-            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                                         -13-                                         -13-            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                                         -14-                                         -14-            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.                                                      -15-                                         -15-
