USCA1 Opinion

August 16, 1994

UNITED STATES COURT OF APPEALS

UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
FOR THE FIRST CIRCUIT
____________________

No. 93-2145
DPJ COMPANY LIMITED PARTNERSHIP,
Plaintiff, Appellant,
v.
FEDERAL DEPOSIT INSURANCE CORPORATION,
AS RECEIVER FOR BANK OF NEW ENGLAND, N.A.,
Defendant, Appellee.
____________________
ERRATA SHEET
ERRATA SHEET
The opinion of this
follows:
On

page

7,

court issued on July 27, 1994, is amended

footnote

1,

line

3,

change

"Cobblestone"
___________

"Cobblestone".
On page 8, paragraph
"reliance damages".

2, line 1, change

"reliance of damages"

UNITED STATES COURT OF APPEALS

FOR THE FIRST CIRCUIT
____________________
No. 93-2145
DPJ COMPANY LIMITED PARTNERSHIP,
Plaintiff, Appellant,
v.
FEDERAL DEPOSIT INSURANCE CORPORATION,
AS RECEIVER FOR BANK OF NEW ENGLAND, N.A.,
Defendant, Appellee.
____________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Edward F. Harrington, U.S. District Judge]

___________________
____________________
Before
Torruella, Circuit Judge,
_____________
Coffin, Senior Circuit Judge,
____________________
and Boudin, Circuit Judge.
_____________
____________________

Robert D. Loventhal with whom Robert D. Loventhal Law Office

___________________
_______________________________
on brief for appellant.
Gregory E. Gore, Counsel, Federal Deposit Insurance Corporati
_______________
with whom Ann S. DuRoss, Assistant General Counsel, and Robert
______________
______
McGillicuddy, Senior Counsel, were on brief for appellee.
____________
____________________
July 27, 1994
____________________

BOUDIN, Circuit Judge.

_____________

DPJ

Company Limited Partnership

("DPJ")

is

February

12,

Massachusetts
1988,

it

estate

entered into

agreement with the Bank

conditions

real

commitment

of New England.

being satisfied,

developer.

Subject

the agreement

On
letter

to various

contemplated the

creation of a three-year $2.5 million line of credit on which

DPJ

could draw to finance

primary steps in land development

ventures (e.g., deposits, option payments,

____

and architectural

and engineering services).

The commitment letter provided
line

of

credit--an

"closing"

requirements,

event

called

deal)--would
such as

occur

In

$180,072.37 in
survey

the

after

the like.

loan commitment

satisfying

the

the delivery to

documents, appraisals, and

non-refundable

that the creation of the

DPJ

various

met

DPJ also had

in

of certain
to pay a

$31,250 immediately.

DPJ

spent

commitment fees, closing

costs, points,

(as

the bank

fee of

conditions,

"closing"

total

costs, legal

environmental reports and

of

fees,

other such

items.
The
Between

line
that

of credit

was

time

January

and

"closed"
6,

on

July 23,

1991,

DPJ

1988.

borrowed

approximately $500,000 from the bank pursuant to the line

credit.
1991,

The bank failed on January 6, 1991.

the bank's

Corporation,

receiver,

disaffirmed

of

On February 1,

the Federal

Deposit

Insurance

line

credit

agreement

the

-2-2-

of

pursuant to its statutory authority to repudiate contracts of

failed banks.
repudiate
statute

12 U.S.C.

1821(e)(1).

such contracts,
sue the FDIC as

Although the FDIC may

the injured

party may

receiver for damages

under the

for breach of

contract; but, with certain exceptions, the injured party may

recover only "actual direct
1821(e)(3)(A)(i),

compensatory damages," 12 U.S.C.

and may not recover

for lost profits or opportunities."

On May
the

FDIC

recover the

to the

line of credit.
the claim.
recover

Id.
___

1821(e)(3)(B)(ii).

22, 1991, DPJ filed an administrative claim with

to

pursuant

inter alia "damages

_____ ____

costs

and

commitment letter
12 U.S.C.

mentioned to

1821(d)(5).

DPJ then brought

its claimed

expenses it

Id.
___

obtain the

The FDIC disallowed

suit in the

damages.

incurred

district court to

1821(d)(6)(A).

Both

sides moved for summary judgment.

The district
1993,
was

court entered a decision

denying recovery to DPJ.

"really

seek[ing]

to

on September 10,

The court concluded that DPJ

recoup

its

closing

costs

as

compensation

for

its lost

borrowing

from the FDIC's disaffirmance."

that the

In substance, the court held

"loss of borrowing capability"

"actual

direct compensatory

decision it cited
FDIC
____

opportunity resulting

does not constitute

damages."

In

and relied upon Judge

support of

its

Zobel's decision in

v. Cobblestone Corp., 1992 WL 333961 (D. Mass. Oct. 28,

_________________

1992).

DPJ then appealed to this court.

-3-3-

The

critical

statutory

phrases--"actual

compensatory damages" and "lost profits

have been

the recurrent subject

direct

and opportunities"--

of litigation.

See, e.g.,
___ ____

Howell v. FDIC, 986 F.2d 569 (1st Cir. 1993); Lawson v. FDIC,
______
____
______
____
3 F.3d

11 (1st Cir. 1993).

recovery to
lost

We have read

the limitation of

compensatory damages, and the

exclusion barring

profits or

Congress'

opportunities,

evident

situation where

purpose:

against
"to spread

the background
the

pain,"

of
in a

the assets are unlikely to cover all claims,

by placing policy-based

limits on

damages for repudiated

contracts.

what can

be recouped

Howell, 986 F.2d

______

as

at 572;

Lawson, 3 F.3d at 16.

______
Contract

damages

injured

party in

enjoyed

if

bargain.

of

Subject to

the bargain"

often calculated

the position

the other

opportunities are

are

that that

side had

its part

various limitations, lost

sometimes recovered under

calculation.

A.

place

party would

fulfilled

the
have

of the

profits and

such a "benefit

Farnsworth, Contracts
_________

12.14 (2d ed. 1990); C. McCormick, Damages,

_______
where

to

25 (1935).

Yet

an injured claimant cannot recover the full benefit of

the bargain--for

example, because

with

certainty--there is

sufficient

profits cannot
an

alternative, well-

established contract damage theory:

[O]ne who fails to meet the burden of
proving
prospective
profits is
not
necessarily relegated to nominal damages.
If one has relied on the contract, one
-4-4-

be proved

can usually meet the burden of proving

with sufficient certainty the extent of
that reliance . . . .
One can then
recover damages based on reliance, with
__________________________
deductions
for any
benefit received
through salvage or otherwise."
Farnsworth, supra,
_____

12.16, at 928 (emphasis added).

As McCormick has explained, "[t]his recovery is strictly

upon the contract,"
not a remedy for
the

contract.

McCormick,

142 at 583.

unjust enrichment, nor is it

It

is

"conform[s] to the more

in all cases,

supra,
_____

a contract

damage

It is

rescission of

computation that

general aim of awarding compensation

and [it] departs from the standard of value of

performance only

because of

[latter standard]."
Colinas, Inc.,
_____________

the difficulty in

Id. at 583-84.
___

453 F.2d

911, 914

applying the

See generally In re Las

_____________ __________
(1st

Cir. 1971)

(citing

numerous authorities), cert. denied, 405 U.S. 1067 (1972).

____________
Subject

to common-law

return in due

limitations, to

course, expenditures by DPJ

which

we shall

in fulfilling its

part of the bargain can properly be recovered as compensatory

damages under this
damages
statute.

alternative reliance

so computed do not
The FDIC

theory.

offend the terms

of the federal

does not dispute that the

$180,072.37 in

costs and expenses were "actual" expenditures.

were apparently
down

by

the

made to
bank,

Certainly

the

And, as they

fulfill specific stipulations

resulting damages

can

fairly

laid
be

described as
damages

that

"direct," a

term normally used

are causally

remote,

to filter

unforeseeable

out

or both.

-5-5-

Farnsworth, supra, at
_____

12.14-12.15.

Similarly, DPJ's expenditures are not, by any stretch of

literal language, "lost profits or opportunities."
argue

that

since

unrecoverable, the
offend
the

lost

profits

recovery of

Congress'

ban

on

apparent view

opportunities

lost profits
that these

reflected in

the disallowance

damages, 12 U.S.C.

also

But the policy underlying

and

opportunities

benefits have,

measure, an aspect of being windfall gains.

is

are

reliance damages would

the policy of the statute.

statutory

and

One might

is

in some

This same policy

of punitive

or exemplary

1821(e)(3)(B)(i), and damages for future

______

rent when the FDIC disaffirms a lease and surrenders property

previously leased by the bank.
There is
of

Id.
___

1821(e)(4)(B).

normally no windfall involved

reliance damages.

DPJ is

seeking

in the recovery

to recapture

money

actually

spent

obtain a line

under

the

of credit

commitment

that the FDIC

letter agreement
has now

to

repudiated.

Whether or not one shares Congress' belief that "lost profits

and opportunities"
should

be

offended

are a

disfavored,
by

returning

special category of
that

policy is

DPJ its

not

damages which
even

out-of-pocket

remotely

expenditures

which, because of the FDIC's repudiation, have made DPJ's own

expenditures (at least in part) fruitless.
The district court called DPJ's claim one to recover for
a "lost

opportunity" since

the breach of

contract deprived

-6-6-

DPJ of the opportunity

be so if, as
would have
be

to secure further loans.

in Cobblestone, DPJ were claiming

___________
been realized through

arguably

so (we

do

This could
profits that

further loans.1

not decide

the

It might

point) if

DPJ was

claiming as damages the cost of securing a substitute line of

credit.

But reliance damages

opportunity;

do not compensate

they merely restore to

for a lost

the claimant what he or

she spent before the opportunity was withdrawn.

In sum,

DPJ has claimed

reliance damages in

and we hold that reliance damages--or

by DPJ--are

"actual direct

compensation for
not

barred

by

at least those claimed

compensatory

"lost profits
Cobblestone.
___________

this case

damages," are

not

and opportunities," and

are

Construction

of

the

quoted

statutory phrases is, of course, a matter of federal law, and

the concept of reliance damages has long been recognized both
in

federal litigation,

Rumsey Mfg. Corp. v.

__________________

United States
_____________

Hoffman Mach. Corp., 187 F.2d 927, 931-32 (2d Cir. 1951) (L.
____________________
Hand), and in Massachusetts.

Air Technology Corp. v. General

____________________
_______

Elec. Co., 199 N.E.2d 538, 549 n.19 (Mass. 1964).

_________
When we
common-law

turn

to the

limitations on

final

issues in

reliance

this

case--the

damages--the choice

of

____________________
1In Cobblestone, the company took the position that it
___________
had lost approximately $5 million because the FDIC repudiated
a line of credit used by Cobblestone to finance equipment
that it expected to lease to customers.
We agree with the
denial of such a lost-profits recovery in Cobblestone, but
___________
think the decision quite distinguishable.
-7-7-

governing law is more debatable.

The

underlying

obligation

on which DPJ sues is a contract created by Massachusetts law.

Federal law imposes statutory limits

on the damages that may

be awarded against the FDIC when it repudiates the

Whether the

nuances and

damages should
law

contract.

qualifications that shape

be decided

under Massachusetts

reliance

law, federal

or conceivably both is an interesting question.

It need

not be answered here, because Massachusetts' view of reliance

damages
turn,

does not appear to depart from general practice.

then,

to

possible

common-law

limitations

We

on DPJ's

recovery of reliance damages in this case.

First,

because

reliance

injured party's "cost of

"an injured
that
at

party cannot

damages seek

The FDIC in

measure the

reliance" on the breached contract,

recover for costs

party made the contract."

928 n.2.

to

incurred before
______

Farnsworth, supra,
_____

12.16,

this case argues that, at the time

DPJ made its expenditures, the bank had no obligation to make

a loan at all, for that obligation arose only after the
later

made

transaction and
supra,
_____

discretionary
establish the

12.16, at 928

n.2.

judgment

to

line of credit.
The

"close"

bank
the

Farnsworth,

FDIC concludes that DPJ's

pre-loan expenditures were not made in reliance upon the line

of credit promise but were made in order to secure it.
This will not wash.
agreement that gave rise,

The commitment letter was itself an

upon the satisfying of conditions,

-8-8-

to the bank's obligation to create and maintain DPJ's line of

credit.

Whether the bank reserved for itself the discretion

to refuse to close (e.g.,

____

if dissatisfied with the documents

submitted to it), the DPJ expenditures were made pursuant

________
the agreement and

so "in

performance" by DPJ.
practical
$200,000
reason

preparing to perform

McCormick, supra,
_____

matter, companies
in

satisfying loan

to expect

that

do

not

the loan

and in

part

142, at 583.

As a

normally spend

conditions
itself

to

almost

without

very good

will be

approved.

Thus, we think it is unrealistic to separate the expenditures

by DPJ from the bank's promise

to provide the line of credit

and to make loans pursuant to it.

Second, where full performance

of a contract would have

given claimant no benefit, or at least less than the reliance

damages

claimed,

disallowing reliance

this

fact

may

damages.

been performed.

would have accrued if the

credit when the

If it has not waived the

on remand the FDIC might conceivably try to show that

DPJ would
credit

says that it was

its line of

FDIC put an end to the opportunity.

issue,

12.16, at

Prior to the bank's closing,

DPJ had borrowed only $500,000; DPJ in turn

to borrow further on

or

that claimant

Farnsworth, supra,
_____

930 & nn. 11-14 (citing cases).

preparing

limiting

The notion is

should on no account get more than

contract had

justify

in fact not have

and,

therefore,

borrowed further on

that

DPJ

had

in

the line of

fact

received

-9-9-

everything it

would have

received had FDIC

not disaffirmed

the line of credit agreement.

Third, a reliance recovery may
that the

breaching party

can

be reduced to the extent

prove that

a "deduction"

is

appropriate "for

any benefit received [by

salvage or otherwise."

Farnsworth, supra,
_____

& nn. 1, 3 & 7 (citing cases).

Contracts
_________

349

the claimant] for

(benefits

12.16, at 928-29

Compare Restatement (Second),

_______ ____________________
not

mentioned).

It

is

an

intriguing question whether, assuming that the issue is open,

there

should

be

any

received by DPJ by

deduction

for

the

benefit

virtue of the $500,000 in

already

loans actually

made and, if so, how that deduction should be measured.

These

are by

abstract.
not

easy issues

On the one hand

waived the

benefits

no means

issue,

the FDIC could argue,

that DPJ

received

promised by the agreement,

the potential loan amount ($500,000

the

availability of

promised

three

arguments as to why

possible
________

some portion

such as 20

other

and

of

per cent of

out of $2.5 million)

for two

On the

in the

if it has

one half

hand DPJ

no equitable offset is proper.

side has briefed the

a

credit

years.

to resolve

of

or
the

might have
Neither

relatively sparse caselaw pertaining to

deduction for

benefits received

where reliance

damages are claimed.

There
district

is no

indication

court that

DPJ

that the

FDIC

would assuredly

-10-10-

argued in

have declined

the
to

borrow further on the line of credit or that a deduction from

the

amount claimed

received.
court.

should be

made

to account

for benefit

Certainly no such arguments have been made in this

If the FDIC does press such arguments on

district court can determine

remand, the

whether the arguments have been

waived by a failure to assert them in a timely manner.

The judgment of

the district court

matter remanded for further proceedings

________
opinion.

is vacated and
_______

the

consistent with this

-11-11-