DocketNumber： 92-1257
Filed Date： 11/2/1992
Status： Precedential
Modified Date： 9/21/2015
November 2, 1992
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
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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.
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APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MAINE
[Hon. Gene Carter, U.S. District Judge]
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Before
Torruella, Circuit Judge,
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Aldrich, Senior Circuit Judge,
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and Boudin, Circuit Judge.
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Robert E. Rochford with whom Dunn, Pashman, Sponzilli, Swick &
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Finnerty, Elizabeth G. Stouder, and Richardson & Troubh were on brief
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for appellant.
Jerrol A. Crouter with whom Drummond Woodsum Plimpton & MacMahon
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was on brief for Biddeford School Department.
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ALDRICH, Senior Circuit Judge. On April 17, 1989
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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.
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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
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presently material.
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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
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3. "This matter involves the complex and sometime
conflicting interplay of three agreements among three
separate parties."
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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
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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
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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
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Thomaston, 100 A.2d 1090, 1092 (Me. 1991), and universally.
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Fairfield 274-278 Clarendon Trust v. Dwek, 970 F.2d 990, 993
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(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
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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.
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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.
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Paterson-Leitch Co. v. Massachusetts Municipal Wholesale
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Electric Co., 840 F.2d 985, 990 (1st Cir. 1988), citing Fed.
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R. Civ. P. 72(b). See also, 28 U.S.C. 636(b)(1) (1992
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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.
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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.
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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.
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