
USCA1 Opinion

	




          November 2, 1992                            UNITED STATES COURT OF APPEALS                                FOR THE FIRST CIRCUIT                                _____________________        No. 92-1257                               BUSINESS CREDIT LEASING,                                      Plaintiff,                                          v.                                  CITY OF BIDDEFORD,                          Defendant, Third-Party Plaintiff,                                         and                             BIDDEFORD SCHOOL DEPARTMENT,                     Defendant, Third-Party Plaintiff, Appellee.                                          v.                             INSTRUCTIONAL SYSTEMS, INC.,                          Third-Party Defendant, Appellant.                                 ____________________                     APPEAL FROM THE UNITED STATES DISTRICT COURT                              FOR THE DISTRICT OF MAINE                       [Hon. Gene Carter, U.S. District Judge]                                          ___________________                                 ____________________                                        Before                               Torruella, Circuit Judge,                                          _____________                            Aldrich, Senior Circuit Judge,                                     ____________________                              and Boudin, Circuit Judge.                                          _____________                                 ____________________            Robert E. Rochford  with whom  Dunn, Pashman,  Sponzilli, Swick  &            __________________             ___________________________________        Finnerty,  Elizabeth G. Stouder, and Richardson & Troubh were on brief        ________   ____________________      ___________________        for appellant.            Jerrol A.  Crouter with whom  Drummond Woodsum Plimpton & MacMahon            __________________            ____________________________________        was on brief for Biddeford School Department.                                 ____________________                                 ____________________                      ALDRICH, Senior  Circuit Judge.  On  April 17, 1989                               _____________________            Biddeford  School  Department  (Biddeford1)  contracted  with            Instructional Systems, Inc. (ISI), a New Jersey  corporation,            to  purchase a computer-assisted learning system and services            from ISI for  approximately $580,000 over a  six year period.            The agreement provided,                      Biddeford  has the  right to  cancel this                      agreement   after   the  first   year  of                      operation.  If Biddeford opts  to cancel,                      Instructional Systems will take  over the                      equipment lease and remove the equipment.            At that  time, as ISI  knew, there was  not yet an  equipment            lease.   On September 21, 1989 Biddeford entered into a lease            with  Business  Credit  Leasing,   Inc.  (BCL)  under   which            Biddeford agreed to pay BCL a total of $600,000 over the five            year  term2 of  the  lease and  to  vest current  and  future            ownership  of the equipment supplied  by ISI in  BCL, with an            option in Biddeford  to turn over the equipment to BCL at the            end of  the lease, or to purchase from BCL at the then value.            The  lease was not assignable without BCL's consent.  The day            previous,  September  20,  ISI   had  agreed  with  BCL  (the            "remarketing agreement") that if  Biddeford should default on            the lease ISI would take possession of the equipment as BCL's            agent and use its  best efforts to resell for  BCL's benefit.                                            ____________________            1.  The  City   of  Biddeford,  formerly  a   party  to  this            litigation, was dismissed, with no appeal taken.            2.  The difference between  six years, ante, and five  is not                                                   ____            presently material.                                         -2-            Out of these  three seemingly  straightforward agreements  we            have, in ISI's view,  a very complicated situation.3   One of            the difficulties  is that the alleged  complexities may never            have  been  thought  of by  ISI  until  long  after suit  was            brought.                      Biddeford commenced a  so-called pilot program, but            on March 20, 1990 it notified ISI that it was exercising  its            option to  cancel the  agreement in June,  concededly timely,            and requested  ISI to "take  over the said  equipment lease."            ISI  took back the equipment, under protest, but did not make            the payments due  on the  lease.  Instead,  according to  the            affidavit of a Mr. Dunn, its New Jersey counsel, it attempted            to  negotiate a  settlement with Biddeford  and BCL,  on what            grounds does not  appear.  Rather than  agreeing, BCL brought            this  action  against  Biddeford  for   the  lease  payments.            Biddeford denied liability, and,  by a third party complaint,            sought declaratory relief to the effect that ISI, rather than            it, was obligated for the payments, but that if this was  not            so, and Biddeford must pay, ISI was required to reimburse it.                      On January 7, 1991 Mr. Dunn accepted service of the            third party summons received, together with the complaint, on            December 24, and  assigned responsibility for the  litigation            to  a younger partner.   This partner failed  to retain local                                            ____________________            3.  "This   matter   involves   the  complex   and   sometime            conflicting   interplay  of  three   agreements  among  three            separate parties."                                         -3-            counsel, and neglected  to file an  answer or other  pleading            himself within the 20 days specified in the summons.  Fed. R.            Civ. P. 12(a).  In due course ISI was defaulted.  The balance            of this opinion is devoted to unsuccessful attempts to remove            the default.  We affirm.                      Default was entered on January 29.  On  February 14            the partner, who had been on trial and forgot about the case,            telephoned  local counsel  who had  been approached,  but not            definitely retained, and learned  the bad news.  On  February            15  counsel moved to set  aside the default  and answer late,            with a memorandum to follow.  This memorandum, filed by local            counsel on February 22,  asserted that Biddeford could cancel            only if  the ISI system did  not improve the  test results of            the students, and that it canceled for other reasons.  "Thus,            ISI has a meritorious defense to the claim."  The late filing            of the answer was asserted to be due to misplacing the papers            and the busy  trial schedule of the  partner.  This, and  the            basis  of   the  defense  that   the  right  to   cancel  was            conditional, was supported by  an assertion, unexplained,  in            the  partner's affidavit.   Biddeford  replied, pointing  out            that  ISI was  offering no  valid defense.   In  March, local            counsel  responded  again that  the  cancellation  clause was            ambiguous    and    added    that   ISI's    contract-signing            representative's  affidavit  showed  that he  understood  the            agreement  could be  canceled only for  "non-appropriation of                                         -4-            funding or lack of performance."  No attempt was made to deal            with  the  unambiguous  contract  language  recited   in  the            complaint, or with the parole evidence rule.                      On  April 30  the magistrate to  whom the  case had            been assigned rendered an opinion denying the motions because            of  insufficient  excuse  and   no  showing  of  an  adequate            defense.4  On May  10 ISI filed  an objection to the  failure            to  find the  excuse acceptable.   Nothing  was said  about a            defense.  On May 17 it moved to supplement the record, adding            affidavits  by Mr. Dunn and his partner attesting to the fact            that, unrecognized by both,  the partner, though working, had            been  suffering  personal  difficulties due  to  concern over            serious family  health problems,  and had not  been himself.5                                            ____________________            4.  The  latter   is  now,  quite  properly,   conceded;  the            cancellation  clause was  peradventure unambiguous.   This is            the  end  of  the  road  under  Maine  law,  Loe v.  Town  of                                                         ___     ________            Thomaston, 100  A.2d 1090, 1092 (Me.  1991), and universally.            _________            Fairfield 274-278 Clarendon Trust v.  Dwek, 970 F.2d 990, 993            _________________________________     ____            (1992); Restatement, Contracts,   237.  To cap  this, ISI did            not even offer parole evidence, but only the affidavit of its            representative, ante,  as to his understanding,  for which no                            ____            basis was given.            5.  ISI did not  include this motion in the appendix.  It was            only by independent examination  thereof that we learned that            the  seeming suggestion in ISI's  reply brief here, signed by            local counsel, that it  also dealt with defense --  "the full            and complete facts of why the Answer was not timely filed and            with  the full  and  complete  legal  exposition of  why  the            default  should  be  lifted." --  is  quite  erroneous.   The            magistrate had  listed six issues; the motion dealt only with            one -- the excuse for not timely filing.  Whether  or not the            omission  of this  document  violated  F.R.A.P. 30(a)(4),  it            violated  more  than  a   procedural  rule  to  misstate  its            contents.                                         -5-            On May 24 Biddeford  responded, contesting the sufficiency of            the  partner's   condition  as   an  excuse  under   all  the            circumstances,  and noting  the  magistrate's discussion  and            conclusion of no adequate defense.                      Filings  did not  end there.   On  June 5,  without            leave, ISI  submitted a  15 page so-called  reply memorandum.            It protested  that its  objection to the  magistrate's report            included the matter of viable defenses because it had annexed            a copy of the  partner's February affidavit that claimed  the            cancellation  clause was  ambiguous.   This was  an erroneous            argument; the  objection's reference to the  affidavit was in            quite another  particular.   The memorandum proceeded  to set            out wholly new defenses based on the interrelationship of the            three agreements, the lack of  an assignment of the equipment            lease  and other  alleged  difficulties.   It asked  that the            magistrate's decision be reversed,  so that ISI could proceed            to trial, or, alternatively, that the case be returned to him            for further consideration.                      The district  court rendered  its decision on  July            31,  1991.   Procedurally  it held  that  it need  not decide            whether ISI's June  5 reply memorandum was  too late, because            ISI had already made a serious failure.  It had not presented            a  proper defense to the  magistrate, nor had  it objected to            the magistrate's  rejection.   The court quoted  our language            that there  is no  review as  of right  of a  new contention.                                         -6-            Paterson-Leitch  Co.  v.  Massachusetts  Municipal  Wholesale            ____________________      ___________________________________            Electric  Co., 840 F.2d 985, 990 (1st Cir. 1988), citing Fed.            _____________            R.  Civ. P.  72(b).   See also,  28 U.S.C.    636(b)(1) (1992                                  ___ ____            Supp.).    Although  it  felt  the  new  information  of  the            partner's family  worries was  sufficient to excuse  the late            filing  of  an  answer, it  refused  to  find  that this  one            lawyer's   problems  were   sufficient,  under   the  overall            circumstances,  to  excuse  the  late  submission  of  a  new            defense.                      The  three contracts  have  all  been  in                      existence since  1989 and if  ISI thought                      that   their   relationship  provided   a                      potential   meritorious   defense,   that                      argument should have  been raised  before                      the Magistrate Judge.            At the court hearing Mr. Dunn stated that, as far as his firm            knew,  ISI had no knowledge  of the content  of the equipment            lease  until  suit was  commenced.   In  its reply  brief ISI            magnifies this to conclusive evidence of ISI's ignorance.  We            find  this hard  to  accept.6    With client  knowledge,  the            court's finding of lack  of diligence, on which it  based its            conclusion of waiver, is even more supportable.                                            ____________________            6.  Could  it  be thought  that  ISI  conducted its  pre-suit            negotiations with  Biddeford and BCL without having a copy of            the lease?  When, on September  20, 1989, it entered into the            remarketing agreement  with  BCL, "In  consideration  of  BCL            entering into the below said lease . . ." did it not  see it?            Biddeford  had   already  signed  a   duplicate  original  on            September 7, so it was in existence.                                         -7-                      We  are  not led  to  be disturbed  by  the court's            decision.  The  amount of money involved, much  emphasized by            ISI, rather than invoking liberality, points to a duty of due            care.   If  Biddeford's  lease  could  make for  trouble,  it            strikes  us as  odd that  ISI, who  was in the  business, led            Biddeford, an  unsophisticated customer, to believe  it would            be wholly  free to  cancel and then  not supervise  it as  to            future  pitfalls,  if  there  were such.    Instead,  ISI now            complains  of the  terms of  the lease, and  the "conflicting            interplay" caused by the remarketing agreement that allegedly            barred it  from becoming  an assignee, an  agreement that  it            made itself.  True,  there were three agreements, but  if the            troika was unmanageable, this is late in the day.                      Affirmed.                      ________                                         -8-
