USCA1 Opinion
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
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No. 93-2237
FEDERAL DEPOSIT INSURANCE CORPORATION, etc.,
Plaintiff, Appellee,
v.
BAY STREET DEVELOPMENT CORP., ET AL.,
Defendants, Appellants.
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WILLIAM J. BYRNE, JR., AND JOSEPH F. TIMILTY,
Defendants, Appellants.
No. 93-2238
FEDERAL DEPOSIT INSURANCE CORPORATION, etc.
Plaintiff, Appellee,
v.
BAY STREET DEVELOPMENT CORP.
AND JOHN RYAN,
Defendants, Appellants.
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APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Douglas P. Woodlock, U.S. District Judge]
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Breyer,* Chief Judge,
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Cyr and Boudin, Circuit Judges.
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Frank L. McNamara, Jr., with whom J. Alan Mackay was on brief for
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Chapter 7 Trustee, et al.
Jeffrey M. Lovely, with whom Robert A. Murphy and Casner &
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Edwards were on brief for William Byrne and Joseph Timilty.
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James W. Stoll, with whom Emanuel Alves and Brown, Rudnick, Freed
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& Gesmer, P.C. were on brief for FDIC.
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August 26, 1994
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*Chief Judge Stephen Breyer heard oral argument in this matter,
but did not participate in the drafting or the issuance of the panel
opinion. The remaining two panelists therefore issue this opinion
pursuant to 28 U.S.C. 46(d).
CYR, Circuit Judge. The Federal Deposit Insurance
CYR, Circuit Judge.
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Corporation (FDIC), as receiver, obtained summary judgment
against defendants-appellants in an action to recover amounts due
a failed savings bank on various loans and loan guaranties. On
appeal, defendants contend that their defenses to FDIC's claims
are not barred by D'Oench, Duhme & Co. v. FDIC, 315 U.S. 447
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(1942), and its statutory counterpart, 12 U.S.C. 1823(e). We
affirm the district court judgment.
I
I
BACKGROUND1
BACKGROUND
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In March 1987, defendant-appellant Bay Street Develop-
ment Corporation (Bay Street) entered into a Loan Agreement with
First Mutual Bank for Savings (FMB) for the purpose of financing
a condominium construction project. The Loan Agreement set the
maximum loan principal at $9 million, with disbursements to be
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made over time subject to certain conditions specified in the
Loan Agreement. Contemporaneously, the Bay Street principals,
defendants-appellants John Ryan,2 William J. Byrne and Joseph F.
Timilty, jointly and severally guarantied the construction loan
to the extent of $2.5 million (the Multiple Guaranty). Pursuant
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1The material facts are related in the light most favorable
to defendants-appellants, against whom summary judgment was
granted. See Velez-Gomez v. SMA Life Assur. Co., 8 F.3d 873,
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874-75 (1st Cir. 1993).
2J. Christopher Robinson, trustee in bankruptcy of the
chapter 7 estate of John Ryan, has been substituted as a party.
See Fed. R. App. P. 43.
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3
to a written side agreement, Ryan promised to indemnify Byrne and
Timilty for any liability incurred under the Multiple Guaranty
(the Indemnification Agreement). At the time the Indemnification
Agreement was executed, Ryan had a net worth of $5.7 million.
FMB's records contain no reference to the Indemnification Agree-
ment.
In June 1987, Bay Street failed to satisfy certain
conditions which constituted default events under the Loan Agree-
ment. Bay Street attempted to negotiate with FMB to cure the
defaults. Finally, at a meeting on February 6, 1989 (the Arnone
meeting), FMB vice-president Richard Arnone informed Ryan that
FMB would release the undisbursed balance of the $9 million
construction loan, notwithstanding any past or future Bay Street
defaults, if Ryan would provide FMB with an additional guaranty
(the Additional Guaranty). On February 23, Ryan executed the
Additional Guaranty, which expressly stated that he was guaranty-
ing an additional $6.5 million in order "to induce [FMB] to make
further loan advances pursuant to the [L]oan [A]greement."
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(emphasis added). FMB thereupon advanced Bay Street another $1.5
million, bringing total advances under the Loan Agreement to $6
million. By May 1989, Bay Street had yet to cure its previous
defaults under the Loan Agreement. At about the same time, Ryan
notified FMB that he was repudiating both the Multiple Guaranty
and the Additional Guaranty. As Ryan and Bay Street were in
default, FMB demanded payment in full pursuant to the terms of
4
the Loan Agreement and the loan guaranties. The defendants
rejected FMB's demand.
In June 1989, FMB initiated the present action in
Massachusetts Superior Court against Bay Street for breach of the
Loan Agreement (Count 1); Ryan, Byrne and Timilty for breach of
the Multiple Guaranty (Count 2); and Ryan for breach of the
Additional Guaranty (Count 3). Bay Street and Ryan filed coun-
terclaims for, inter alia, fraud in the inducement and breach of
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the Arnone meeting agreement. In April 1990, the superior court
granted summary judgment for FMB on Counts 1 and 2, rejecting the
defense interposed by Byrne and Timilty that FMB had released
them from the Multiple Guaranty by accepting the Additional
Guaranty, which effected an unauthorized alteration of the Loan
Agreement. The superior court denied summary judgment on Count
3, on the ground that a genuine dispute remained as to whether
FMB had induced the Additional Guaranty through fraud.
In June 1991, after FMB had been placed in receiver-
ship, FDIC removed the action to federal district court, then
moved for summary judgment on Count 3 and on the remaining Bay
Street and Ryan counterclaims. Ryan and Bay Street countered
with a motion for reconsideration of the superior court's summary
judgment rulings on Counts 1 and 2. In due course, the district
court granted summary judgment for FDIC on Count 3 and on defen-
5
dants' counterclaims, and denied the motion for reconsideration
on Counts 1 and 2. This appeal ensued.3
II
II
DISCUSSION
DISCUSSION
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A. Summary Judgment Standard
A. Summary Judgment Standard
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A state court summary judgment order may be modified or
vacated following removal of the action, see Hyde Park Partners,
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L.P. v. Connolly, 839 F.2d 837, 842 (1st Cir. 1988); 28 U.S.C.
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1450, upon a determination that it does not comport with Fed.
R. Civ. P. 56, see RTC v. Northpark Joint Venture, 958 F.2d 1313,
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1316 (5th Cir. 1992), cert. denied, 113 S. Ct. 963 (1993). As
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with any summary judgment order, id., we review the district
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court ruling de novo, employing the identical summary judgment
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criteria incumbent upon the court below, Velez-Gomez, 8 F.3d at
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874-75. Thus, summary judgment will be upheld if the record,
viewed in the light most favorable to the nonmoving party,
discloses no trialworthy issue of material fact, and the moving
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3Ryan challenges the district court order insofar as it
rejected his defense to the Additional Guaranty, but does not
appeal from the dismissal of his counterclaims. Byrne and
Timilty challenge the rejection of their defense to the Multiple
Guaranty. Bay Street's claims on appeal track Ryan's, save that
Bay Street also asserts that the district court erred in finding
no trialworthy issue relating to Bay Street's state-law counter-
claims charging bad faith and unfair dealing. These latter
claims are deemed waived, as they are unsupported by any devel-
oped argumentation. See, e.g., RTC v. Gold, F.3d ,
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(1st Cir. 1994) [No. 94-1080, slip op. at 4 (1st Cir. July 21,
1994)].
6
party has demonstrated its entitlement to judgment as a matter of
law. Id.
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B. No. 93-2237: Bay Street and Ryan4
B. No. 93-2237: Bay Street and Ryan
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Bay Street and Ryan contend on appeal, as before the
district court, that a material issue of fact remained on Count
3, concerning whether FMB, through Arnone, orally promised to
release the entire undisbursed balance of its loan commitment
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under the Loan Agreement, notwithstanding any past and future
defaults by Bay Street. Bay Street and Ryan argue that the
following language in the Additional Guaranty was ambiguous,
viz., "Ryan . . . to induce [FMB] to make further loan advances
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pursuant to the loan agreement referred to below . . . hereby
unconditionally guarantees . . . $6,500,000." Based on Ryan's
affidavit attesting to the Arnone meeting, see supra p. 4, Bay
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Street and Ryan argue that a jury reasonably could find that the
above-quoted language represented a commitment by FMB to advance
the entire undisbursed balance ($4.5 million) it originally
agreed to lend under the Loan Agreement, without regard to past
or future defaults by Bay Street.
Their defense is not sustainable against FDIC, see
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D'Oench, Duhme & Co. v. FDIC, 315 U.S. 447 (1942); 12 U.S.C.
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1823(e), absent a reasonably explicit written agreement in
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FMB's records to this effect. See FSLIC v. Two Rivers Assocs.,
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Inc., 880 F.2d 1267, 1275-76 (11th Cir. 1989) (on similar facts,
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inquiring whether writings contained explicit acceptance of the
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4We bypass the jurisdictional question raised by FDIC in
connection with this appeal. See Norton v. Matthews, 427 U.S.
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524, 532 (1976) (jurisdictional question may be passed over where
ruling on merits would lead to same result). See also note 2
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supra.
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8
obligation to fund the entire project). The only writing argu-
ably evidencing an ambiguous commitment of this type is the
Additional Guaranty itself, which merely states that Ryan provid-
ed the Additional Guaranty "to induce FMB to make further loan
advances." Bay Street and Ryan implicitly concede as much by
maintaining that "the meaning and import of the [quoted] phrase
is not clear from the face of the document drawn by [FMB] in
which it appears, or from any other document referred to there-
in."
Absent extrinsic evidence, the Additional Guaranty
cannot be read to require FMB to advance all loan funds remaining
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undisbursed under the Loan Agreement. See Sweeney v. RTC, 16
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F.3d 1, 5 (1st Cir. 1994) (per curiam) (contract terms were "far
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too ambiguous, absent extraneous support, to establish an agree-
ment to fund further construction. At most, they reflect an
intention to provide further funds.") (footnote omitted), peti-
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tion for cert. filed, 62 U.S.L.W. 3775 (U.S. May 2, 1994) (No.
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93-1782); see also FDIC v. Hamilton, 939 F.2d 1225, 1231 (5th
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Cir. 1991) (the 1823(e) mandate that promises be "in writ-
ing" only permits enforcement of obligations set out on the
face of the instrument). And, of course, extrinsic evidence of
additional terms is inadmissible against FDIC. See Two Rivers,
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880 F.2d at 1276 ("[O]ne ambiguous reference to a further con-
struction loan is not sufficient to allow [defendant] to advance
defenses against the FSLIC about an agreement to fund the entire
project."); RTC v. Daddona, 9 F.3d 312, 319 (3d Cir. 1993)
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("[T]he essential terms . . . [of an agreement must] appear
plainly on the face of that obligation.").5
Ryan counters that his breach of contract defense is
based on the bilateral nature of the obligations assumed under
the Additional Guaranty. See Howell v. Continental Credit Corp,
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655 F.2d 743, 746-47 (7th Cir. 1981) (D'Oench inapplicable where
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face of instrument whose terms FDIC seeks to enforce manifests
bilateral obligations that form the basis of the opposing party's
defense). Howell is inapposite to the present context, however.
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The defenses relied on in Howell were in no respect
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dependent on parol agreements, see id. at 747, whereas Ryan
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concedes that the language in the Additional Guaranty "to
induce [FMB] to make further loan advances" could not have
afforded FDIC explicit notice of the specific terms of the
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alleged FMB waiver of past and future defaults, absent resort to
the parol evidence arising out of the Arnone meeting. See supra
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pp. 4, 7. Thus, reliance on the so-called Howell exception is
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misplaced. See FDIC v. O'Neil, 809 F.2d 350, 354 (7th Cir. 1987)
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5Altogether apart from D'Oench, Duhme, evidence of prior
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negotiations is inadmissible under Massachusetts law to alter or
contradict the terms of a written agreement. See Boston Edison
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Co. v. Federal Energy Reg. Comm'n, 856 F.2d 361, 365 (1st Cir.
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1988) (Massachusetts parol evidence rule). The Additional
Guaranty expressly provides that "[u]pon the occurrence of any
event of Default (as that term is defined in the Loan Agreement)
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in the payment or performance of any of [Bay Street's] obliga-
tions, [Ryan's] obligations and liabilities hereunder shall
become immediately due." (emphasis added). This language would
appear to foreclose use of the alleged Arnone meeting promise to
show that FMB waived its contractual right to declare later
defaults.
10
(Howell exception inapplicable where bank's obligation did not
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appear explicitly on face of document FDIC sought to enforce);
accord Hamilton, 939 F.2d at 1231 (Howell exception inapplicable
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as face of note did not manifest bilateral obligations); Two
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Rivers, 880 F.2d at 1275 ("This is not a case like [Howell] where
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the leases on which the suit was based 'clearly manifest[ed] the
bilateral nature of the lessee's and lessor's rights and obliga-
tions.'").
The legislative policy underlying the D'Oench doctrine
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corroborates the district court ruling as well. A primary aim of
D'Oench is to enable bank examiners to rely on bank records in
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assessing the value of bank assets. See Langley v. FDIC, 484
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U.S. 86, 91 (1987). There is no indication that the Arnone
meeting was mentioned, let alone memorialized, in any FMB record.
See Timberland Design, Inc. v. First Serv. Bank for Sav., 932
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F.2d 46, 48 (1st Cir. 1991) (per curiam) ("D'Oench, Duhme . . .
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favors the interests of depositors and creditors of a failed
bank, who cannot protect themselves from secret agreements, over
the interests of borrowers, who can.") (citations omitted). The
district court did not err in awarding FDIC summary judgment
against Bay Street and Ryan.
C. No. 93-2238: Byrne and Timilty
C. No. 93-2238: Byrne and Timilty
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Appellants Byrne and Timilty challenge the summary
judgment order on the ground that the Additional Guaranty ac-
quired by FMB undermined the terms of the Multiple Guaranty and
11
the Loan Agreement without their consent.6 Cf. Provident Co-Op
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Bank v. James Talcott, Inc., 260 N.E.2d 903, 910 (Mass. 1970)
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("[A] substantial change in the conditions to which a bond
relates, made without the knowledge and consent of the surety,
discharges him from further liability.") (applying Mass. law;
citations omitted); FDIC v. Manion, 712 F.2d 295, 297 (7th Cir.
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1983) (noting general acceptance of this rule). Their resource-
ful theory is that the Indemnification Agreement, as a practical
matter, effectively insulated them from risk under the Multiple
Guaranty, see supra pp. 3-4, because Ryan's net worth, approxi-
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mating $5.7 million at the time the Indemnification Agreement was
executed, provided ample wherewithal to fund Ryan's commitment to
indemnify them for any liability incurred under the Multiple
Guaranty. But because the Additional Guaranty increased the
total exposure on Ryan's personal guaranties to $9 million (the
$2.5 million Multiple Guaranty plus the $6.5 million Additional
Guaranty), well beyond his total net worth, Byrne and Timilty
insist that their actual exposure on the Multiple Guaranty was
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thereby increased from zero to $2.5 million. Thus, they argue,
FMB materially modified the Multiple Guaranty to their detriment
by obtaining the Additional Guaranty from Ryan.
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6Byrne and Timilty make the related argument that FMB
breached the Multiple Guaranty provision prohibiting its alter-
ation without the written consent of all three guarantors. As
this argument was never raised, either in state court or the
district court, we decline to consider it. See Gold, slip op. at
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4.
12
The problem with this appealing argument is that it is
premised on a revisionist view of the Indemnification Agreement;
hence, it too is precluded under the D'Oench, Duhme doctrine, due
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to the absence of any FMB record substantiating an obligation on
the part of FMB to refrain from undermining the Multiple Guaranty
in this manner. Further, even Byrne and Timilty make no claim
that either Ryan or FMB was under any contractual or other legal
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obligation to refrain from increasing Ryan's liability to FMB or
to obtain the approval of Byrne and Timilty before doing so. See
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D'Oench, Duhme & Co., 315 U.S. at 460.
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III
III
CONCLUSION
CONCLUSION
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For the foregoing reasons, the district court judgment
must be affirmed.
Affirmed.
Affirmed.
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