
USCA1 Opinion

	




                            UNITED STATES COURT OF APPEALS                                FOR THE FIRST CIRCUIT                                 ____________________          No. 94-1853                             COMMAND TRANSPORTATION INC.,                                Plaintiff - Appellee,                                          v.                             B.J.'S WHOLESALE CLUB INC.,                             AMES DEPARTMENT STORES INC.,                        MORSE SHOE INC., LIONEL LEISURE INC.,                             AND HOME INSURANCE COMPANY,                               Defendants - Appellees.                                 ____________________                          LIBERTY MUTUAL INSURANCE COMPANY,                                Defendant - Appellant.                                 ____________________                                     ERRATA SHEET               The  opinion of  this  court  issued on  August  9, 1995  is          amended as follows:               The coversheet should read "Hon. W. Arthur Garrity, Jr.".                                                                   ___                            UNITED STATES COURT OF APPEALS                                FOR THE FIRST CIRCUIT                                 ____________________          No. 94-1853                             COMMAND TRANSPORTATION INC.,                                Plaintiff - Appellee,                                          v.                             B.J.'S WHOLESALE CLUB INC.,                             AMES DEPARTMENT STORES INC.,                        MORSE SHOE INC., LIONEL LEISURE INC.,                             AND HOME INSURANCE COMPANY,                               Defendants - Appellees.                                 ____________________                          LIBERTY MUTUAL INSURANCE COMPANY,                                Defendant - Appellant.                                 ____________________                     APPEAL FROM THE UNITED STATES DISTRICT COURT                          FOR THE DISTRICT OF MASSACHUSETTS                  [Hon. W. Arthur Garrity, Jr., U.S. District Judge]                                                ___________________                                 ____________________                                        Before                                Boudin, Circuit Judge,                                        _____________                 John R. Gibson* and Campbell, Senior Circuit Judges.                                               _____________________                                _____________________               David J.  Daly, with whom  John E. Lecomte, Timothy  J. Daly               ______________             _______________  ________________          and  Lecomte,  Emanuelson,  Tick  &  Doyle,  were  on  brief  for               _____________________________________          appellant Liberty Mutual Insurance Company.               Kurt Terwilliger, with whom Richard D. Bickelman and Deutsch               ________________            ____________________     _______          Williams  Brooks DeRensis Holland  & Drachman  were on  brief for          _____________________________________________          appellee Command Transportation, Inc.                                 ____________________                                    August 9, 1995                                 ____________________                                        ____________________          *  Of the Eighth Circuit, sitting by designation.                                         -1-                    JOHN R. GIBSON,  Senior Circuit Judge.   Liberty Mutual                    JOHN R. GIBSON,  Senior Circuit Judge.                                     ____________________          Insurance  Company appeals  from  the  district court's  judgment          denying its counterclaims against Command Transportation, Inc. to          recover  freight damage claims Liberty paid to Command's shippers          and to collect insurance  premiums from Command.  Liberty  argues          that the district court erred:  (1) in failing to reduce  freight          damage  claims Liberty paid  Command's shipping customers  by the          amounts the  shippers owed Command  for freight services;  (2) in          denying  its motions  to substitute or  add the  Resolution Trust          Corporation  as  a  defendant or  third-party  defendant;  (3) in          denying  relief on  Liberty's breach  of  contract claim  against          Command  for  unpaid insurance  premiums;  and (4)  in  ruling on          issues of disputed material fact.  We affirm the district court's          judgment.                    It  is unnecessary  that we  detail  the complex  facts          underlying the  relatively simple  issues in this  appeal.   This          litigation began  when Command,  an interstate  trucking company,          became  insolvent and attempted  to collect freight  charges from          its  shippers,  including  B.J.'s  Wholesale  Club, Inc.;  Lionel          Leisure,  Inc.; Morse  Shoe, Inc.;  and  Ames Department  Stores.          These  shippers filed  counterclaims against Command  for freight          damage and losses.                    In  1980, Command  had purchased  a  Motor Truck  Cargo          Policy from Liberty.  As required by the Interstate Commerce Act,          the policy contained an endorsement for cargo liability, commonly          referred  to  as  a  "BMC-32 endorsement."    49  U.S.C.    10927          (a)(3)(1988).   Under the BMC-32 endorsement Liberty was required          to pay directly  any freight damage claims  of Command's shippers          for  which Command  may have  been liable.   Further,  the BMC-32          endorsement provided, in part:                      The insured agrees to reimburse [Liberty]                      for  any  payment  made  by [Liberty]  on                      account of any loss or damage involving a                      breach of the terms of the policy and for                      any payment that [Liberty] would not have                      been   obligated   to  make   under   the                      provisions of the  policy, except for the                      agreement contained in  this endorsement.          The policy terminated on  October 1, 1988, and was  replaced by a          similar policy  issued by Home  Insurance Company.   Command sued          Liberty and Home for breaching the insurance contract  by failing          to  pay  shippers directly  for  their lost  or  damaged freight.          Although  Liberty admittedly received the freight claims (and, in          fact,  paid  some),  Liberty  argued  that  it  was  entitled  to          Command's accounts receivable from the shippers.  Liberty alleged          that a surety relationship existed between Command and Liberty by          virtue of Liberty's payment of  freight damage claims directly to          the  shippers under  the BMC-32  endorsement.   As  surety of  an          insolvent  principal, Liberty  contended that  it  could set  off          Command's freight  charge claims against  Liberty's obligation to          pay the shippers' freight damage claims.                    In  1986, Command  entered  into  a  revolving  finance          agreement with Comfed Savings Bank.  The agreement granted Comfed          a security  interest in  certain of  Command's assets,  including          Command's accounts receivable.                                         -3-                    By April 1989, Command was insolvent.  Command sold its          assets to Munson Transportation and paid the proceeds  to Comfed.          In December  1990, the RTC  was named as conservator  for Comfed,          and, in September 1991, the  RTC was appointed receiver.  Liberty          claimed that the RTC was the real party in interest which must be          substituted for Command or added as a third-party defendant.                    During  the  litigation,   the  district  court  denied          Liberty's motions to substitute the RTC for Command or to add the          RTC  as a  third-party defendant.   The court  rejected Liberty's          arguments that  the RTC,  through Comfed, was  the real  party in          interest.                    Ultimately, the parties  resolved all their  respective          claims, except  for Liberty's counterclaims  against Command  for          setoff and for breach of contract.                    The  district court  ordered that  Command  and Liberty          file an agreed stipulation of facts.  The parties could not agree          to a joint stipulation of facts, so each party submitted its  own          proposed  stipulation of facts.   The proposed  stipulations were          almost identical except  each party included some  facts that the          other party either disagreed with or did not address.                    After  a hearing on March  28, 1994, the district court          denied Liberty's counterclaims.   Command Transportation Inc.  v.                                            _______________________________          B.J's Wholesale Club, Inc., Civ.  No. 90-10188-G, slip op. at 16-          __________________________          17 (D. Mass. June 23, 1994).   The court determined that the BMC-          32 endorsement  obligated Liberty  to pay  shippers directly  for          freight  damage and  loss.   The court  ruled that  although this                                         -4-          obligation  may  supersede  other  provisions  of  the  insurance          policy, "the endorsement must be read in conjunction with, not in          lieu of, the policy."  Id. at 9.  The court based this ruling  on                                 ___          the endorsement,  which stated:   "[A]ll  terms, conditions,  and          limitations in the policy  to which this endorsement is  attached          are to remain in  full force and  effect."  After discussing  two          cases  considering earlier versions of the BMC-32 endorsement, In                                                                         __          re  Yale Express Sys.,  Inc., 362  F.2d 111  (2d Cir.  1966), and          ____________________________          Empire Fire  & Marine Ins.  Co. v. J.  Transport, Inc., 880  F.2d          ______________________________________________________          1291  (11th  Cir.  1989),  the  court  distinguished  obligations          arising   from  the  policy  and  obligations  arising  from  the          endorsement.  The court concluded that Liberty could be a surety,          entitled  to a  setoff  only  for payments  it  made to  shippers          "solely" under  the endorsement, and that Liberty failed to prove          that it made  payments solely under the endorsement.  Slip op. at          13.   The court  determined that Liberty  failed to  classify its          payments to shippers as an  obligation from the endorsement or as          an  obligation from  the  policy.   The  court  pointed out  that          Liberty omitted the cargo policy as an exhibit to the Stipulation          of Facts, and attached only a one-page form:  "Motor Truck Policy          - Gross Receipts,"  which did not explain Liberty's obligation to          pay claims  under the policy.  Id.   The court ruled that Liberty                                         ___          was not entitled to set  off freight damage claims with Command's          accounts receivable.   The court acknowledged that  Liberty could          have  a valid  setoff  claim  "to the  extent  that its  payments          represent deductibles  it would  not have  been obligated  to pay                                         -5-          under the policy."   Id. at 14.   Once again, however,  the court                               ___          concluded  that Liberty failed to prove  entitlement to a setoff.          The court referred to an affidavit submitted by Liberty, to which          Command  did not stipulate,  listing Liberty's total  payments to          each  shipper.   Id.   Because  the affidavit  showed only  total                           ___          payments,  the court  could  neither  determine  if  Liberty  had          already reduced the  amount by the deductible, nor  calculate the          date,  amount,  or number  of  losses.   Accordingly,  the  court          concluded that  there was  no basis for  ruling that  Liberty was          entitled to a setoff for the deductible amount.  Id. at 14-15.                                                           ___                    Liberty also  claimed subrogation  rights arising  from          indemnity agreements  between  it and  Command,  whereby  Command          agreed to  indemnify Liberty  for any monies  paid by  Liberty in          connection  with  "bonds,  undertakings  and/or  obligations   of          suretyship or guarantee"  issued on behalf  of Command.   Because          Liberty's recovery  under this  provision depended  on proving  a          surety relationship, the court did not address Liberty's claim of          subrogation.   Id. at  15.   The court  explained that a  further                         ___          obstacle to  Liberty's claims  existed because  a non-party,  the          RTC,  held a secured  interest in Command's  accounts receivable.          Id. at 16.          ___                    Finally,  the court held  that Liberty failed  to prove          its breach of contract claim.   Id.  The court reasoned that  the                                          ___          sole  item  of  evidence,  a  September 20,  1989,  Statement  of          Account, did not  prove that Command owed Liberty  premiums under          the policy that lapsed in 1988.  Without the terms of the policy,                                         -6-          including proof of coverage dates, the court refused to speculate          whether Command had failed to pay premiums due.  Id. at 17.                                                           ___                    Liberty filed a motion to amend judgment.  At a hearing          on a different  motion, Liberty's counsel stated that  he did not          expect the  court to  enter judgment on  the basis  of stipulated          facts  but thought there  would be a  trial.  The  district court          judge  found this statement inconsistent with his recollection of          the  March 28, 1994  proceedings when Liberty's  counsel remained          silent after Command's  counsel stated he  expected the court  to          enter judgment on the basis of  the stipulated record.  The court          construed Liberty's silence as assent.  The district court denied          Liberty's motion, and Liberty appeals.                                          I.                                          I.                    In its reply  brief, Liberty contends that  the parties          did not authorize the district court  to decide disputed material          facts.   Liberty  asserts that  although  the parties  wanted the          district court to decide the  case based on stipulated facts, the          parties  did not  agree to  stipulated facts.   Arguing  that the          standard  governing the  granting of  a  summary judgment  motion          applies, Liberty contends that the district court erred by ruling          on material issues of genuine fact without a trial.                    Liberty  agreed,  however,  for the  district  court to          decide the case  on the record before it.  The first paragraph in          Liberty's memorandum submitted  to the district court  in support          of judgment in its favor states:                      The  following  memorandum  is  submitted                      pursuant   to   the   agreement   between                                         -7-                      [Command]   and   [Liberty]    that   all                      remaining issues in this  case be decided                      by the Court based  upon a Stipulation of                      Facts.     No  final  agreement   on  the                      Stipulation of Facts  was reached by  the                      deadline  imposed by  the  Court, so  the                      references in this  memorandum are to the                      "Stipulation of  Facts" filed  by Liberty                      on  March 23, 1994.   Liberty also relies                      on its previous briefs filed with respect                      to this matter.                    The  record of the March 28 proceedings also shows that          Liberty expected the court to decide the case based on the record          before  it.   At the  hearing,  the district  court judge  asked:          "What are  we doing here  this afternoon?"  The  judge questioned          whether  the proceedings were pretrial, cross motions for summary          judgment, or trial of the case.  Command's counsel responded that          the court directed  the parties to submit a  stipulation of facts          and brief the issue of liability on Liberty's counterclaims.  The          court  then  explained that  it  was  unsure  where to  turn  for          evidence of  the payments, receipts  and dates, and asked  if the          submitted  filings identified the amounts that Liberty, or anyone          else,  paid  the  shippers.    Command's  counsel  answered  that          Liberty's  affidavit showed  the amounts  Liberty  paid and  that          Command  did   not  intend  to   submit  further   documentation.          Liberty's  counsel agreed that  he addressed every  issue Command          raised in  its briefs.   After discussing  the merits  of various          issues,  the  court  asked  Liberty's  counsel  what  he  sought.          Liberty answered:  "any monies which went to Command or may go to          Command in the  future which were subject to  the shipper's right          to setoff."                                         -8-                    Furthermore,  the  district   court's  June  23,  1994,          decision made twenty-three findings of fact, incorporating all of          the stipulations of  facts submitted by Liberty in  its March 24,          1994  filing,  except  for  Liberty's proposed  stipulation  that          Command had not paid certain premiums due.  Liberty's argument in          this appeal does  not identify a disputed issue  of material fact          it  claims to  be wrongly  decided by  the district  court.1   We          therefore reject Liberty's argument that the district court erred          by deciding this  case and, indeed, are left  with the impression          that Liberty has been less than candid in urging this position.                                         II.                                         II.                    Liberty  argues that the  BMC-32 endorsement  created a          surety relationship  between Liberty  and Command,  and that  the          district court's finding  of no suretyship is  clearly erroneous.          Liberty contends that,  as Command's  surety, it  is entitled  to          assert the shippers' right to set off unpaid freight charges.                    The  case  law  unequivocally  supports  the   district          court's view that  the mere existence  of the BMC-32  endorsement          does not give rise to  a surety relationship entitling Liberty to          set  off  its  obligation  to  pay  freight  damage  claims.    A          suretyship  is created  only after  the insurer  makes  a payment                                        ____________________          1    Having  failed to  identify  any  material  factual dispute,          Liberty's  arguments that the  district court should  have viewed          the proceedings as cross-motions for summary  judgment and held a          trial on  the merits  are contradictory.   See Boston  Five Cents                                                     ___ __________________          Sav.  Bank v. Dep't  of Housing &  Urban Dev., 768  F.2d 5, 11-12          _____________________________________________          (1st Cir. 1985) (discussing difference between decisions based on          cross-motions  for  summary   judgment  and  those  based   on  a          stipulated record).                                         -9-          required solely under the endorsement,  in other words, a payment          the  insurer "would  not have  been obligated  to make  under the          provisions of the policy."                    The Second Circuit considered an earlier version of the          BMC-32 endorsement in  In re Yale  Express, 362  F.2d 111.   That                                 ___________________          endorsement  required the carrier  to reimburse the  insurer "for          any payment that  the [insurer] would not have  been obligated to          make under the provisions of the policy, except for the agreement          contained  in the endorsement."   Id. at 113.   After the carrier                                            ___          went bankrupt, the shippers asserted  claims for lost and damaged          freight.   Id.    The carrier  and  insurer asserted  conflicting                     ___          positions.   The  carrier  demanded that  the  shippers  pay  all          freight charges  to it.  Id.  The  insurer asserted that it could                                   ___          set off freight damage  claims with the carrier's claims  against          the shippers for  unpaid freight.  Id.   The Second  Circuit held                                             ___          that the insurer was a surety only for the claims it  paid solely          under the endorsement, not to  those claims it paid also required          by the policy.  Id. at 114.   The court explained that suretyship                          ___          exists when "'one person has undertaken an obligation and another          person  is also under an obligation or other duty to the obligee,          who is  entitled to but one  performance, and as between  the two          who  are bound, one rather than  the other should perform.'"  Id.                                                                        ___          (quoting  Restatement  of  Security    82  (1941)).    The  court          reasoned  that,  although  the  insurer  and  carrier  were  both          obligated  to the shipper, the carrier's promise to reimburse the          insurer for any payments made solely by virtue of the endorsement                                         -10-          made  the carrier,  not the  insurer, the  principal who  "should          perform."  Id.   The court distinguished claims  that the insurer                     ___          paid  under  the  endorsement exceeding  the  deductible:   "[the          insurer's] position under the endorsement differs wholly from its          status with respect to  claims exceeding [the deductible]; as  to          the latter it is an  indemnitor," not a surety.  Id. at  114 n.1.                                                           ___          Because the deductible is an  amount which the insurer would "not          otherwise be  obligated to pay"  except for the  endorsement, the          insurer had surety status only for the deductible amount.  Id.                                                                     ___                    The Eleventh Circuit rejected the very argument Liberty          makes here  in Empire Fire  & Marine, 880  F.2d 1291.   The court                         _____________________          remanded that case,  in part, for a determination  of whether the          insurance  policy  covered the  loss  at  issue.   Id.  at  1298.                                                             ___          Likewise,  in  American  Inter-Fidelity  Exch.  v.  American  Re-                         __________________________________________________          Insurance Co., 17 F.3d 1018  (7th Cir. 1994), the Seventh Circuit          _____________          interpreted   language   virtually   identical  to   the   BMC-32          endorsement, concluding that an insurer  is a surety only for the          deductible under the  endorsement, the amount  it would not  have          been  obligated to pay  under the policy.   Id. at  1022.  Accord                                                      ___            ______          Ford  Motor Co. v. Transport  Indem. Co., 41  B.R. 433, 439 (E.D.          ________________________________________          Mich.  1984), rev'd  on other  grounds,  795 F.2d  538 (6th  Cir.                        ________________________          1986).   Cf. Eastern Freight  Ways, Inc. v. Seaboard  Surety Co.,                   ___ ___________________________________________________          577  F.2d 175,  180  n.9  (2d  Cir.  1978)  (surety  relationship          established because of issuance of bonds for cargo claims).                    Because Liberty may be a  surety only to the extent its          payments  to shippers represent  payments required "solely" under                                         -11-          the  endorsement,  we  have  no  difficulty  rejecting  Liberty's          argument  that  the  district  court  erred  in  requiring it  to          distinguish between policy and  endorsement obligations.  Liberty          contends that  Command did  not allege  that Liberty's  liability          arose from anything other  than the endorsement.  Liberty  points          out  that, when it  was called on  to directly pay  the shippers,          Command  had already  cancelled and  replaced  the cargo  policy.          Thus, Liberty contends that the district court erred in requiring          proof that  Liberty had no  obligation to pay the  shippers under          the policy.                      Liberty's argument is circular.   The endorsement, just          as in Yale Express and  Empire Fire & Marine, specifically limits                ____________      ____________________          Liberty's right to reimbursement from Command to payments Liberty          would  not have  been  obligated  to pay  under  the policy,  and          Liberty  bore  the  burden  of  proving  entitlement  to  setoff.          Reliance Steel Prod. Co. v. National Fire Ins. Co., 880 F.2d 575,          __________________________________________________          577-78 (1st Cir. 1989).  Liberty neglected to specify whether its          payments to shippers were  also obliged under the policy.  See In                                                                     ___ __          re Yale Express,  362 F.2d at 114  n.1 (insurer not a  surety for          _______________          amounts  in excess  of  deductible under  endorsement);  American                                                                   ________          Inter-Fidelity Exch., 17  F.3d at 1022 (insurer is  a surety only          ____________________          for deductible under endorsement).                    We similarly reject Liberty's argument that  suretyship          and insurance cannot co-exist  and that, therefore, its  right to          setoff is  not subject to  the insurance provisions of  the cargo          policy.     This  argument   is  inconsistent   with  the   cases                                         -12-          interpreting the BMC-32 endorsement  and irreconcilable with  the          language   of  the   endorsement  providing   that  "all   terms,          conditions, and limitations  in the policy  . . . remain in  full          force and effect."   See Empire Fire  & Marine, 880 F.2d  at 1298                               ___ _____________________          (regulations  which  require  the endorsement  "do  not  alter or          affect the  obligations between  the insured  and the  insurer");          American Inter-Fidelity Exch., 17 F.3d at 1022 (same).          _____________________________                                         -13-                                         III.                                         III.                    Liberty  next argues  that the  district court  clearly          erred  in finding  that the  evidence was  insufficient  to prove          Liberty's counterclaim  for premiums  owed by  Command under  the          policy.                      Liberty sought $656,330.04  in premiums allegedly  owed          by Command under the cargo policy.  The district court noted that          the "only policy before the Court is the Motor Truck Policy . . .          issued on November 1, 1980 and numbered K01-712-001357-04."  Slip          op. at  16-17.  The district  court found that the  only evidence          offered by Liberty to support its breach of contract  claim was a          September 20,  1989, Statement  of  Account.   Id.  at 16.    The                                                         ___          Statement of Account listed several policy numbers,  and the only          policy number in the two-page statement which corresponded to the          policy number on the face of the policy differed by one digit and          listed  a "Retro  Adjustment" in  the  amount of  $186,159.   The          district  court concluded  that the  evidence did  not show  that          Command   continues  to  owe  premiums  under  the  policy  which          terminated in 1988,  only that Liberty made  a "retro adjustment"          to that policy.                    During  the hearing,  the district court  asked counsel          which  page  of  the  policy  defined  "premiums owed  under  the          policy."   Liberty's  counsel remained  silent  when counsel  for          Command stated that "it's  not [Command's] burden" but  "if there          is an  answer to that question I would  guess it would be located          in the policy."                                         -14-                    On  appeal,  Liberty  explains   only  that  a   "retro          adjustment is  an increased premium  owed by an insured  based on          the cost to the insurer as shown by actual experience,"  and that          the "retro adjustment amounts listed on the  Statement of Account          are  'Payable on  Receipt.'"   Liberty  explains  that the  total          retroadjustments  reflected in the  Statement of Account  are all          premiums  for policies  that are  part of  the cargo  policy and,          therefore, Liberty  should be awarded  $444,262 on its  breach of          contract claim.   The shortfall of Liberty's  contentions is that          it has  presented no  evidence to explain  how it  calculated the          "retro  adjustment" or why Command still  owes premiums under the          1988 insurance policy.2   Therefore, the  district court did  not          err in concluding that there was insufficient evidence to support          Liberty's breach of insurance contract claim.                                         IV.                                         IV.                    Finally,  Liberty   alleges  numerous  errors   in  the          district court's refusal to substitute  the RTC as the real party          in interest or to  add the RTC as  a party under Fed. R.  Civ. P.          17(a), 19, and 20.  Liberty alleges that Comfed, and subsequently          the  RTC, is the real  party in interest.   Liberty also contends          that  the RTC,  acting through  the corporate  shell  of Command,          attempts,  through this litigation,  to force Liberty  to pay the          shippers' claims  so that the  RTC may collect the  full accounts                                        ____________________          2  Liberty's citation to Truck Ins. Exch.  v. Webb Transfer Line,                                   ________________________________________          Inc., 432 S.W.2d 25, 26 (Ky. Ct. App. 1968), is unpersuasive.  In          ____          that case,  the parties  did not dispute  the computation  of the          total  amount  of  premiums payable,  and  the  insurer presented          testimony as to the premium computation.  Id.                                                      ___                                         -15-          receivable due from the shippers free from Liberty's right to set          off.     Liberty  contends  that  the  RTC's  collection  without          affording notice or  the opportunity to be heard deprived Liberty          of  its  property  in  violation  of  the  Fifth  and  Fourteenth          Amendments to the United States Constitution.                    Because Liberty failed to prove entitlement to a setoff          against  Command's bankruptcy  estate, Liberty's efforts  to make          the RTC a party necessarily fail.  In any event, we are persuaded          that  a  number of  other  reasons support  the  district court's          refusal to substitute or add the RTC as a party or  a third-party          defendant, including Liberty's failure to exhaust  administrative          remedies, see,  e.g., Marquis v.  FDIC, 965 F.2d 1148,  1151 (1st                    ___   ____  ________________          Cir.  1992),  or  to  explain  the  superiority  of  its  alleged          interest.  See In re Yale Express, 362 F.2d at 117.                     ___ __________________                    We affirm the district court's judgment.                       ______                                         -16-
