USCA1 Opinion

UNITED STATES COURT OF APPEALS

FOR THE FIRST CIRCUIT
____________________

No. 95-1729

FEDERAL DEPOSIT INSURANCE CORPORATION,

AS LIQUIDATING AGENT OF FIRST MUTUAL BANK FOR SAVINGS,

Plaintiff, Appellee,

v.

ELDER CARE SERVICES, INC. and

FRANK C. ROMANO, JR.,

Defendants, Appellants.

____________________

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Nancy Gertner, U.S. District Judge]

___________________

____________________

Before

Selya, Boudin and Lynch,

Circuit Judges.
______________

____________________

William T. Harrod III

_____________________

with whom Harrod Law Offices was on

__________________

bri

for appellants.
Daniel H. Kurtenbach, Counsel, with whom Ann S. Duross,
____________________
_____________

Assist

General Counsel, and Richard J. Osterman, Jr., Senior Counsel, were

________________________
brief for appellee.

____________________

April 24, 1996

____________________

BOUDIN, Circuit Judge.

______________

In January

1987, Brandon Woods

of Glen Ellyn, Inc., a wholly owned subsidiary of Elder Care,

Inc.,

borrowed

Savings

$10.1 million

located in Boston.

from

First

Mutual Bank

The purpose was

for

to finance the

purchase by Brandon Woods of the site of a former seminary in

Glen

Ellyn, Illinois,

and the

into

a retirement community.

development of

the property

In due course the property was

acquired by Brandon Woods for $4.5 million.

The

bank loan was secured by a mortgage on the seminary

property and by two guaranties from third parties in favor of

the bank--one from Elder

Care, Inc., and the other

president

in

guarantees

Frank

Romano

contained

broad

waivers of any requirements

(to the extent permitted

his personal

waiver

from its

capacity.

provisions,

Both

including

of "diligence or promptness" and

by law) waivers of "any

defense of

any

kind."

The guaranties

provided that they were governed

by Massachusetts law.

The loan was to

later

extended

defaulted.

refinance

brought

Illinois

entered a

at

to

After

be repaid by

October

a delay

28,

January 30, 1988, a

1988,

to allow

but

Brandon

Brandon Woods

date

Woods

time to

(which it failed to do), the bank on June 27, 1989

a foreclosure

state

court.

action

On

against Brandon

December

26, 1990,

foreclosure judgment, fixing the

just over

$12.8 million,

including the

-2-2-

Woods in

the

an

court

amount then owed

unpaid balance,

interest and attorney's

fees.

The court

ordered that

the

property be sold on February 5, 1991.

On

February 5,

1991, Brandon

Woods filed

a voluntary

bankruptcy petition, blocking the

sale of the property under

the

the Bankruptcy

automatic stay

U.S.C.

362(a)(1).

provision of

On April 8, 1991, the

denied the bank's motion

Code.

11

bankruptcy court

to lift the stay, finding

that the

property if fully developed would be worth about $13 million,

just

exceeding

the amount

then claimed

by

the bank.

In

August 1991, the bankruptcy court granted a renewed motion to

lift the stay

financing.

On

year delay,

sale

after Brandon Woods failed to

for

November 23, 1993, after

an unexplained two-

the seminary property was sold

$300,000,

all

of

which

gain additional

at a foreclosure

went

to

satisfy

construction firm's prior lien.

In the meantime,

present action

guarantors.

Deposit

24, 1991, the

in Massachusetts state court

A month later

Insurance

liquidating agent.

court.

on May

In April

the bank failed

Corporation

("FDIC")

bank filed

the

against the two

and the Federal

was

appointed

The FDIC then removed the case to federal

1993, the

district court

judgment in favor of the FDIC as to liability.

granted summary

In

district

the

May 1994, the present

judge.

case was reassigned

to a new

On June 8, 1995, the district court granted

FDIC's motion for summary judgment as to damages, and on

-3-3-

August 4, awarded the

FDIC $15,316,887.33.

This represented

the

then-outstanding

$16,416,719.31 (for

fees)

claimed

by

principal, plus interest

the

FDIC

of

and attorney's

less specific maintenance expenses incurred by Brandon

Woods, claimed by

The

balance

it as an offset, and conceded by the FDIC.

two guarantors

now

appeal, claiming

that there

was a

material issue of fact precluding summary judgment.

In substance, the guarantors say

disparity between estimates

the $13

million estimate

that there is a

gross

of the property's value--notably

made by the

bankruptcy court--and

the $300,000 sale price obtained at the foreclosure sale.

the

guarantors'

unexplained

view,

two-year

this discrepancy--coupled

delay in

the

sale--gives

with

rise to

In

the

factual dispute about whether the FDIC acted in good faith in

liquidating the security.

Bad faith or fraud, the guarantors

argue, would bar or diminish the FDIC's recovery.

Massachusetts

law does

permit

a guarantor

to

waive

defenses, see Shawmut Bank, N.A. v. Wayman, 606 N.E.2d

___ ___________________
______

927 (Mass. App. Ct.

not

1993), but probably such a

immunize bad faith or

fraud.

See
___

925,

waiver could

Pemstein v. Stimson,
________
_______

630 N.E.2d 608, 612 (Mass. App. Ct.), rev. denied, 636 N.E.2d
____ ______

279

(Mass. 1994).

district court

in assuming

faith or fraud could

the

For

present

purposes, we

arguendo that
________

be used to lessen or

follow

a showing

the

of bad

prevent recovery;

FDIC asserts the contrary but offers no case directly on

-4-4-

point.

Corp., 54
_____

Still, reviewing the matter de novo, Brown v. Hearst

_______ _____
______

F.3d 21,

district court

24 (1st

that there

Cir. 1995), we

is no

agree with

genuine issue

the

of material

fact to preclude summary judgment.

Determining whether

involves

quantum.

two

The

there is a genuine issue ordinarily

different dimensions:

burden of

proof

on the

burden

issue

of proof

at trial

and

is

relevant

because, if

party resists

summary judgment

by

pointing to a factual dispute on which it bears the burden at

trial,

that

tending to

party

must

point

prove the fact

Catrett, 477 U.S.

_______

by the guarantors.

in its

317, 322-23

faith or fraud would

to

evidence

favor.

(1986).

affirmatively

Celotex Corp. v.
______________

Here,

at trial

be an affirmative defense to

bad

be proved

See Shawmut, 606 N.E.2d at 928.1

___ _______

The quantum of proof that the guarantors must offer is a

different

matter.

permit

reasonable

nonmoving party's

FDIC,
____

It

is

jury

favor."

merely

to

"sufficient evidence

resolve

the

point

in

to

the

Hope Furnace Associates, Inc. v.

______________________________

71 F.3d 39, 42-43 (1st Cir.

1995).

In evaluating the

sufficiency of this evidence

on summary judgment, inferences

____________________

1Courts
judgment
issue

often

say

that

bears the burden to

of fact.

See,
___

the

party

show that there

e.g., Johnson v.
____ _______

summary

is no genuine

United States Postal

____________________

Serv., 64 F.3d 233, 236 (6th Cir. 1995).

_____
in

seeking

This is true enough

general terms, and true specifically as to facts that the

moving party would have to prove at trial; but given Celotex,

_______
the generalization

may be misleading

nonmoving party would have

as to

facts that

to prove at trial as

own claim or defense.

-5-5-

the

part of its

are drawn in favor of the nonmoving party.

24.

Brown, 54 F.3d at
_____

Thus, the guarantor's burden is not a heavy one.

is still

their burden to
_____

would "permit"

point to admissible

a factfinder to conclude

But it

evidence that

rationally that the

FDIC had acted fraudulently or in bad faith.

Here, Brandon

the

FDIC should

foreclosure sale.

Woods has offered no

have chosen

reason whatever why

deliberately to

undermine the

The FDIC relied upon that sale to generate

immediate proceeds to cover its claim and, on the surface, it

had no motive to diminish the recovery from its own security.

The

prior

contractor's lien

was

only

somewhat above

the

$300,000

realized at the sale.

If the

property were worth

millions

more,

in the

FDIC's

obtain

the

failure to

it was

highest

seek

it

plainly

price--especially

could

give the

since

interest to

guarantors

deliberate

defense

against claims on the guarantees.

If the mortgagee in a foreclosure case buys the property

itself, it may

well have

an interest in

preserving its claim for the deficit;

not

pawn

paying less

while

but Brandon Woods does

suggest that the winning bidder at the foreclosure was a

of

the

FDIC.

Other

malign

motives

could also

imagined but are not suggested here either by the

or the surrounding circumstances.

would not

matter

but

bad

be

guarantors

In a negligence case this

faith almost

always

assumes

motive.

It is an uphill

effort for the guarantors

to urge

-6-6-

that, without any

apparent motive

and contrary

to its

own

best interest, the FDIC chose to sabotage its own foreclosure

sale.

Nor is

there any indication of how,

in the guarantors'

view, this sabotage

was carried

FDIC

notice

describes the

bidding

process.

out.

given for

Notice was

An

affidavit of

the

the

auction and

the

given in a

number of journals

(e.g., The Chicago Tribune, Crain's Chicago Business,

____ ____________________ _________________________

Ellyn News), and

___________

professional

Allegedly,

it

were

appears that

made

in

20 potential

three persons bid.

The

marketing

addition

bidders

to

appeared.

Glen
____

efforts by

the

notices.

In the

event,

state court thereafter confirmed the

sale, finding that the sale was properly conducted.

Normally,

expected

books,

party suggesting

to point

to the

self-dealing by

faith or constitutes

fraud

or

misconduct (lies,
__________

a fiduciary)

the fraud.

Cf.

bad faith

is

rigged account

that reflects

Fed. R. Civ. P.

the bad

9(b).

___

True, on some occasions

the inference of fraud or

might be compelled by the combination

but here motive is

ambiguous than

failure

to

bad faith

of motive and outcome;

utterly lacking and the outcome

the guarantors suggest.

allege any

specific

In all

misconduct

far more

events, the

consonant with

fraud or bad faith further impairs the guarantors' claim.

Against

circumstances:

this background,

the supposed

Brandon

Woods points

discrepancy in

-7-7-

to two

amounts between

estimates of value and

delay in the sale.

the price received, and

The most striking difference

is between the $13 million

have

suggest:

held

that

amount received

faith

what

the

Aho Constr. Co.

________________

common sense

disparity between

in foreclosure

but might do so

v.

in amounts

suggested by the bankruptcy court

and the $300,000 winning bid two years later.

courts

the admitted

would

Massachusetts

in

appraised

any

value

does not generally

in extreme circumstances.

Petersen, 367
________

N.E.2d

event

and

show bad

Seppala &
_________

613, 620

(Mass.

1977); see also RTC

_________ ___

v. Carr,
____

13

F.3d 425,

430 (1st

Cir.

1993).

In this

instance, however,

not a serious estimate

As the

transcript of

simply

an

community

all of its

attempt

the $13 million

figure was

of the property's then-current value.

the bankruptcy

to

approximate

project would be worth

units sold at

hearing shows,

what

the

if it were

a projected

price.

it was

retirement-

ever built and

Finding

that

this amount would (slightly) exceed the debt then owed to the

bank, the bankruptcy court offered a few months' delay in the

foreclosure

was

for Brandon Woods to seek more financing.

There

no finding that completion of the project or the sale of

the units was likely.

It is

true that

in the

same bankruptcy

bank expert

apparently testified that the

worth

under $7.5

just

million.

But

proceeding, a

property was then

it appears

that the

-8-8-

bank's

property

interest

at the

was worth

less

time was

than the

simply

$12

to show

millon or

that the

so

then

claimed

by the

bank, and

sale.

Nor do

we

property

thereby to

know whether

the

justify an

bank was

immediate

valuing the

at a supposed market value rather than at the lower

price their

to bring.

forced liquidation would ordinarily

be expected

See BFP v. RTC, 114 S. Ct. 1757, 1761-62 (1994).

___ ___
___

Not only is the $7.5 million figure largely unexplained,

but

it is also undermined as a liquidation value by Romano's

own admission.

months

bring

Romano himself

later, in

1991, that

only $2 million on liquidation.

was sold two years

$1.1

September

warned the FDIC

million

the property

taxes and

the

few

might

And when the property

later for $300,000, it was

in back

only a

cost of

burdened with

dealing with

certain environmental hazards, including asbestos.

Adjusting

the

purchase

price

for

these

burdens

assumed

by

the

purchaser, the discrepancy between Romano's $2 million figure

and the sale price hardly seems large.

Brandon Woods also points

carrying out the sale, which

identifying

Woods

makes

substantial

the

a deficiency

no

in

effort to

during the delay.

said

years in

is as close as it ever

gets to

the FDIC's

show

reduction in the

district court

to the delay of two

that

conduct.

the

Brandon

delay caused

price ultimately obtained, but

that property

values did

decline

In any event, the FDIC had itself urged an

-9-9-

immediate sale; such

taxes on

the

a sale

property

income); and the FDIC

would have

(which

may

avoided upkeep

have

been

is oddly silent about the

earning

and

no

reasons for

the delay.

The

inference

dispose

the

that,

facts just described might be an ample basis for an

that

the FDIC

acted

more promptly of the

property.

FDIC lost track of the matter

after failing

to

negligently

act for

in failing

to

The impression that

is reinforced by the fact

two

years, the

FDIC

was

spurred

to be

to make the sale by news that the property was about

sold for unpaid

negligence, it

taxes.2

might well be

If this were

one in which

a case

about

summary judgment

could not be granted for the FDIC.

But

the

broad

waiver

provision

in

the

guaranties

forecloses such defenses against the bank or its successor in

interest.

Brandon Woods does

not question this reading nor

claim that Massachusetts law forbids such a waiver.

negligence

may

be a

explain the FDIC's

plausible

reticence), it is

judgment in these circumstances.

of negligence tends

inference

So while

(and could

no defense to

also

summary

If anything, the likelihood

further to undermine the

claim that bad

____________________

2At oral argument counsel suggested that the explanation

for the delay may be found in efforts of the parties to reach
a

"global

property
summary

settlement"
in

involving

Massachusetts.

judgment

But

was properly

other
in

Romano-controlled

determining

granted,

we

whether

must take

the

record as it existed in the district court.

-10-10-

faith or fraud could

delay.

be inferred as the explanation

for the

In all events, there was inadequate evidence of fraud

or bad faith to raise a genuine issue of material fact.

It is unnecessary

parties

devote much

guarantors were

the sale price

of

to consider the

issue to which

the

their briefs,

namely, whether

the

entitled to

at all.

litigate about the

The FDIC

fairness of

argues that the guarantors

are precluded from doing so because of the state court ruling

that the sale was fair; the guarantors say that they were not
____

parties to

was a

that proceeding even though

party.

Brandon Woods itself

We express no view on the collateral estoppel

issue since it does not affect the outcome.

Affirmed.
________

-11-11-