USCA1 Opinion
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
____________________
No. 95-1682
DEN NORSKE BANK AS,
Plaintiff, Appellant,
v.
THE FIRST NATIONAL BANK OF BOSTON, ET AL.,
Defendants, Appellees.
____________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Nathaniel M. Gorton, U.S. District Judge]
___________________
____________________
Selya, Circuit Judge,
_____________
Bownes, Senior Circuit Judge,
____________________
and Cyr, Circuit Judge.
_____________
____________________
Glen Banks, with whom Steven C. Koppell and Fulbright & Jaworski,
__________ _________________ _____________________
LLP, were on brief for appellant.
___
Joseph L. Kociubes, with whom Mark W. Batten and Bingham, Dana &
__________________ ______________ _______________
Gould were on brief for appellees.
_____
____________________
February 2, 1996
____________________
CYR, Circuit Judge. Plaintiff Den norske Bank AS ("Den
CYR, Circuit Judge.
_____________
norske") appeals from a district court order granting summary
judgment to defendant First National Bank of Boston ("First
National")1 on its claims for breach of contract and breach of
fiduciary duty. We vacate the judgment.
I
I
BACKGROUND
BACKGROUND
__________
In 1985, First National loaned $43.2 million to Glades
Roads Associates ("Glades Roads") to construct an office building
in Florida, and took a first mortgage on the Project. In 1986,
appellant Den norske entered into a Loan Participation Agreement
("Agreement")2 with First National. Den norske purchased approx-
imately 17% (or $7.5 million) of the Glades Roads loan. First
National retained an 83% interest in the loan, and served as
"Principal" the party charged with administering the loan.
The Agreement also provided, in pertinent part:
11. Approval of Principal's Actions. Principal
________________________________
[First National] agrees that it shall not without prior
___ _______ _____
written agreement by all Participants: (1) reduce the
_______ _________ ______ ___
____________________
1References to "First National" include its predecessor,
BancBoston, and references to "Den norske" include its predeces-
sor, DnC America Banking Corp.
2"In a typical [loan participation arrangement], one bank
the 'lead bank' first makes the loan agreement with the
borrower and then makes a separate agreement the participation
agreement with other banks, to which the lead bank sells
shares in the loan (usually retaining a share for itself, howev-
er), evidenced by participation certificates. The result is that
only the lead bank has a direct contractual relationship with the
borrower." First Nat'l Bank of Louisville v. Continental Ill.
________________________________ ________________
Nat'l Bank & Trust Co. of Chicago, 933 F.2d 466, 467 (7th Cir.
___________________________________
1991).
2
amount of the Loan principal or interest payments; (2)
______ __ ___ ____ _________
reduce the Loan interest rate; (3) postpone for a
period of more than 60 days any due date for payment of
the Loan principal; (4) release or subordinate any of
the collateral or waive any claim against any guarantor
or person who may be secondarily liable who would have
a material, adverse effect on the collection and en-
forcement of the Loan or the Loan documents; (5) sus-
pend the accrual of Loan interest.
In other matters concerning the routine adminis-
__ _____ _______ __________ ___ _______ ________
tration of the loan, [First National] agrees not to
_______ __ ___ ____
deviate from the Loan Documents unless the majority
(dollars outstanding) of the lending institutions agree
to the change provided [First National] is in the
majority. In all cases where a consensus cannot be
reached on matters of administration that is acceptable
to [First National], [First National] agrees to adhere
______
to the Loan Documents.
In all cases pertaining to default, [First Nation-
__ ___ _____ __________ __ _______ _____ _______
al] agrees to adhere to [Section] 13.
__ ______ __ ______ __ _______ __
. . . .
13. Loan Default Procedures. [First National]
________________________
and Participants agree that in case of default, courses
_______
of action will be agreed to by a majority (dollars
__ ______
outstanding) of the lending institutions providing
[First National] is in the majority. In cases where a
consensus cannot be reached on matters pertaining to
default that is acceptable to [First National], then
[First National] agrees to adhere to the Loan Documents
______
for all appropriate remedies. . . . (Emphasis added.)
In July 1991, Glades Roads defaulted on the note. At
the time of the default, First National still held its 83%
interest in the note; Den norske 17%. First National invoked the
acceleration clause, made demand for the entire outstanding loan
principal and accrued interest, then commenced foreclosure
proceedings. In September 1991, however, First National asked
Ernst & Young to evaluate the comparative benefit to First
National of (i) an immediate foreclosure and (ii) a negotiated
loan restructuring agreement whereby Glades Roads would make an
3
immediate payment of $8 million and a five-year balloon payment
of $17 million, and First National in turn would "forgive" $9.6
million. Valuing the Glades Roads project at $24.7 million,
Ernst & Young recommended restructuring rather than foreclosure.
Den norske, believing that the Project was worth far more,
preferred to foreclose, hold the property for five years, and
collect rental income. First National rejected the Den norske
proposal and opted for its own five-year restructuring plan.
In 1992, Den norske brought this diversity action
against First National in federal district court, alleging that
First National's failure to obtain "prior written agreement by
all Participants" with the Glades Roads loan forgiveness arrange-
ment, pursuant to 11 of the Agreement, supra pp. 2-3, consti-
_____
tuted breach of contract, breach of fiduciary duty, and an unfair
trade practice. The district court initially denied cross-
motions for summary judgment, finding 11 and 13 of the Agree-
ment ambiguous. Den norske Bank AS v. First Nat'l Bank of
____________________ _____________________
Boston, 838 F. Supp. 19 (D. Mass. 1993).3
______
Following discovery, however, the court reconsidered,
eventually awarding summary judgment to defendant First National
on the remaining Den norske claims. Den norske Bank AS v. First
__________________ _____
Nat'l Bank of Boston, No. 92-11294-NMG, 1993 WL 773796 (D. Mass.
_____________________
May 24, 1995). The court concluded that 11 unambiguously
entitled Den norske to veto a loan forgiveness only in the pre-
____ __ ___ ____
____________________
3The district court dismissed the unfair trade practice
claim, a decision not challenged on appeal.
4
default stage of "routine" loan administration, but that 13
_______
gave First National the right to choose any "course of action"
thereafter. Id. at *3. The court ruled also that even if the
___
Agreement were determined ambiguous, Den norske's extrinsic
evidence was insufficient to support a rational inference that
the parties intended to give Den norske a post-default veto. Id.
____________ ___
at *4 ("The extrinsic evidence submitted by the plaintiff is
unpersuasive and does not create an ambiguity or a genuine issue
of material fact.").
II
II
DISCUSSION
DISCUSSION
__________
Den norske presents a two-part challenge to the summary
judgment ruling. First, it contends that proper contract inter-
pretation requires summary judgment against First National
because 11 unambiguously ordains that First National cannot
unilaterally "reduce the amount of the [Glades Road] Loan princi-
pal" under any circumstances, including the borrower's default,
_____ ___ _____________
and no provision in 13 countermands the specific prohibition in
11. Second, even assuming 11 and 13 were ambiguous or
inconsistent, Den norske's extrinsic evidence raises genuine
factual disputes as to whether the contracting parties intend-
ed to afford Den norske a unilateral veto over any post-default
loan forgiveness [hereinafter: "veto"] which cannot be re-
solved at summary judgment.
A. Applicable State Law
A. Applicable State Law
____________________
Interpretation of the Agreement is governed by Massa-
5
chusetts law. See Agreement 22. Normally, contract interpre-
___
tation is a question of law for the court. Fairfield 274-278
__________________
Clarendon Trust v. Dwek, 970 F.2d 990, 993 (1st Cir. 1992);
________________ ____
Freelander v. G. & K. Realty Corp., 258 N.E.2d 786, 788 (Mass.
__________ _____________________
1970). Should the court find the contract language unambiguous,
we interpret it according to its plain terms. See Dwek, 970 F.2d
___ ____
at 993; Hiller v. Submarine Signal Co., 91 N.E.2d 667, 669-70
______ _____________________
(Mass. 1950).
If, however, the contract language is ambiguous, on its
face or as applied, contract meaning normally becomes a matter
for the factfinder. See Dwek, 970 F.2d at 993; Freelander, 258
___ ____ __________
N.E.2d at 788. Although not admissible either to contradict or
alter express terms, extrinsic evidence is admissible to assist
the factfinder in ascertaining the intent of the parties as
imperfectly expressed in ambiguous contract language. See Robert
___ ______
Indus., Inc. v. Spence, 291 N.E.2d 407, 410 (Mass. 1973). In
____________ ______
descending order of importance, extrinsic evidence may include:
(1) the parties' negotiations on the particular loan, see Merri-
___ ______
mack Valley Nat'l Bank v. Baird, 363 N.E.2d 688, 690 (Mass.
________________________ _____
1977); Charles River Mortgage Co. v. Baptist Home of Mass., 630
___________________________ ______________________
N.E.2d 304, 306 (Mass. App. Ct.), review denied, 636 N.E.2d 278
______ ______
(Mass. 1994); (2) their course of performance, see Affiliated FM
___ _____________
Ins. Co. v. Constitution Reins. Corp., 626 N.E.2d 878, 882 n.10
________ __________________________
(Mass. 1994) (citing Restatement (Second) of Contracts 203(b)
(1981)); (3) their prior course of dealing, see id.; and (4)
___ ___
trade usage in the relevant (viz., banking) industry, see id. at
___ ___
6
881-82 (citing Restatement 222 cmt. b (1981); A.J. Cunningham
_______________
Packing Corp. v. Florence Beef Co., 785 F.2d 348, 351 (1st Cir.
______________ _________________
1986)); Baccari v. B. Perini & Sons, Inc., 199 N.E. 912, 915-16
_______ _______________________
(Mass. 1936); see also Jamesbury Corp. v. Worcester Valve Co.,
___ ____ _______________ ____________________
443 F.2d 205, 210 (1st Cir. 1971) (citing 3 Arthur L. Corbin,
Corbin on Contracts 542, at 108 (1970)).
___________________
B. Standard of Review
B. Standard of Review
__________________
We examine a grant of summary judgment de novo, with a
__ ____
view to whether there is a "genuine issue as to any material fact
and . . . the moving party is entitled to a judgment as a matter
of law." Fed. R. Civ. P. 56(c); see Byrd v. Ronayne, 61 F.3d
___ ____ _______
1026, 1030 (1st Cir. 1995). Once the moving party (First Nation-
al) makes this showing, the party bearing the ultimate burden of
proof (Den norske) cannot rest on mere allegations, but must
proffer sufficient competent evidence upon which a rational trier
of fact could find in its favor. See, e.g., Milton v. Van Dorn
___ ____ ______ ________
Co., 961 F.2d 965, 969 (1st Cir. 1992) (citing Anderson v.
___ ________
Liberty Lobby, Inc., 477 U.S. 242, 249 (1986)); see also Celotex
____________________ ___ ____ _______
Corp. v. Catrett, 477 U.S. 317, 322 (1986). "'[A]n argument
_____ _______
between parties about the meaning of a[n] [ambiguous] contract is
typically an argument about a "material fact,"'" and summary
judgment is normally unwarranted unless "'the [extrinsic] evi-
dence presented about the parties' intended meaning [is] so
one-sided that no reasonable person could decide [to] the con-
trary.'" Allen v. Adage, Inc., 967 F.2d 695, 698 (1st Cir. 1992)
_____ ___________
(quoting Boston Five Cents Sav. Bank v. Secretary of Dep't of
_____________________________ _______________________
7
HUD, 768 F.2d 5, 8 (1st Cir. 1985)); Blanchard v. Peerless Ins.
___ _________ _____________
Co., 958 F.2d 483, 491 (1st Cir. 1991) (same). Nonetheless, we
___
must resolve all genuine factual disputes, and any competing
rational inferences, in the light most favorable to Den norske,
the party against whom summary judgment entered. See Byrd, 61
___ ____
F.3d at 1030.
C. Interpretation of Participation Agreement
C. Interpretation of Participation Agreement
_________________________________________
1. Contract Ambiguity
1. Contract Ambiguity
__________________
The district court found that the Agreement unambigu-
ously afforded First National, qua majority participant, the
___
unilateral right to forgive principal on post-default loans. Den
____ ___
norske Bank AS, 1993 WL 773796, at *3. The court reasoned that
______________
the prohibition against debt forgiveness in 11, 1, applies
only to pre-default loans. See supra Section I. Section 11,
____ ___ ___ _____
2, of the Agreement refers to "other matters concerning the
_____ _______
routine administration of the loan." (Emphasis added.) The phrase
_______
"other matters" suggests that 2 is residual; that is, 1
describes all other "matters" relating to "routine" loan adminis-
tration not described in 2. By definition, post-default
____
administration of a loan is not "routine," and therefore cannot
___
be governed by 11. We do not agree.
First, though the district court drew a perfectly
plausible inference from the contract language, we do not think
it can be considered the only reasonable inference. For one
____
thing, the 11 caption states "Approval of Principal's Actions,"
_______
not "Approval of Principal's Pre-default Actions." The district
___________
8
court implicitly assumed that the phrase "concerning the routine
administration of the loan," in 2, stood in apposition to the
term "matters," whereas it is as faithfully understood to refer
to the phrase "other matters." In other words, 11, 2, can be
construed to suggest that 11, 1, adverts to "other matters"
(i.e., actions taken by the lead bank) of such overriding impor-
tance to minority participants as to preclude their characteriza-
tion as "routine" matters.
Next, if the contracting parties intended to supplant,
__ ________
in its entirety, the 11 definition of the parties' rights and
__ ___ ________
obligations upon the occurrence of a borrower default, 11, 3,
is oddly couched. For instance, 11, 3, does not say: "In
the event of default, the parties agree that loan administration
_______
will be governed (or controlled) by Section 13." Rather, the
________ __________
choice of language is more inscrutable: "In all cases pertaining
to default, [First National] agrees to adhere to Paragraph 13."
_____ ________ ______
(Emphasis added.) This language lends conspicuous ambiguity in
at least two significant respects. First, ostensibly it imposes
a contractual obligation (i.e., "adherence") upon First National
alone, and not on Den norske. It suggests that though 13
_____ ___ ___ __ ___ ______
imposed additional obligations on First National, see, e.g.,
___________ ___ ____
Agreement 13 (noting that, if the majority of participants
cannot reach a consensus, First National, qua Principal, must
___
"adhere" to loan documents in selecting "appropriate remedies"),
it was not intended to supplant any Den norske contractual right
_____
already enumerated in 11. And, at least arguably, the broad-
9
based caption to 11 "Approval of Principal's Actions"
_______
intimates that Den norske's unconditional right of veto extends
to matters embraced by the phrase "courses of action" in 13.
______
Second, unlike "govern" and "control," the verb "adhere" cannot
be read to rule out the possibility that 13 merely supplements
___________
11 and does not displace it as the only provision defining the
________
parties' contractual rights and obligations in the post-default
period.
First National counters that Den norske's alternate
interpretation would render 13 a virtual nullity, see Merchants
___ _________
Nat'l Bank v. Stone, 5 N.E.2d 430, 433 (Mass. 1936) (noting that,
__________ _____
where possible, no part of contract should be deemed superflu-
ous),4 since it would preclude First National from pursuing some
otherwise appropriate "courses of action" following a default by
the borrower. On the contrary, though Den norske's interpreta-
tion may limit First National's post-default prerogatives under
_____
13, clearly it does not render 13 wholly superfluous. So con-
___________
strued, section 13 still would reserve considerable decisional
latitude to the lead bank, permitting First National to choose
any post-default "course of action," even an innovative one not
____________________
4Meeting parry for thrust, Den norske argues that First
National's interpretation would render 11, 1, a nullity,
since a lead bank rarely (if ever) would have occasion (or need)
to forgive a loan unless the borrower were in default. Although
this proposition has some appeal, it suffers from the same defect
as First National's "nullity" argument; viz., neither conclu-
_______
sively resolves the facial contract ambiguity so as to enable
______ ______
summary judgment. Of course, customary banking practices may be
introduced as circumstantial extrinsic evidence of usage of
trade, from which a jury might infer contract meaning. See infra
___ _____
Section II.C.2(b).
10
specifically described in the loan documents, as long as it did
not choose a course of action (e.g., unilateral loan principal
forgiveness) expressly prohibited under 11, 1.
_________ __________
First National next argues that its interpretation
represents the only "common sense" reading of the Agreement that
comports with the economic realities underlying loan partici-
pation agreements, which are by their very nature risk-spreading
______________
financial arrangements. Thus, a lead bank (at least one which
remains the majority participant) retains a much greater finan-
cial stake in maximizing loan recoveries than do the minority
participants. Consequently, upon a default a minority partici-
pant should not be able to take unfair advantage of the majority
participant by invoking a veto, thereby forcing the majority
either to take a "course of action" it deems inappropriate, or to
buy out the minority participant's share at a premium. See,
___
e.g., First Nat'l Bank of Louisville v. Continental Ill. Nat'l
____ _______________________________ _______________________
Bank & Trust Co. of Chicago, 933 F.2d 466, 470 (7th Cir. 1991)
____________________________
("The banks that had financed five-sixths of the loan thought it
in their best interest not to call the loan, despite the borro-
wer's default. Given that decision, it was in [the minority
participant's] interest to play dog in the manger . . . ."); see
___
also Carondelet Sav. & Loan Ass'n v. Citizens Sav. & Loan Ass'n,
____ ____________________________ __________________________
604 F.2d 464 (7th Cir. 1979); Mark Twain Bank v. Continental
________________ ___________
Bank, N.A., 817 F. Supp. 792 (E.D. Mo. 1993).
__________
The "economic realities" driving participation agree-
ments vary too widely in individual cases to control the "four
11
corners" analysis of the Agreement in this case.5 As with all
contracting parties, "each bank [negotiating a participation
agreement] wants to preserve, so far as possible, its freedom of
__ ___ __ ________
action," First Nat'l Bank of Louisville, 933 F.2d at 470 (empha-
______________________________
sis added), yet this intuition is tempered by its assessment as
to the financial benefits which would accrue in the event a
mutually acceptable "compromise" agreement can be achieved. For
example, lead banks utilize participation agreements (1) to
spread credit risks by diversifying their loan portfolios, see
___
Banco Espanol de Credito v. Security Pac. Nat'l Bank, 973 F.2d
_________________________ _________________________
51, 53 (2d Cir. 1992), cert. denied, 113 S. Ct. 2992 (1993); W.C.
_____ ______
Lott, et al., Structuring Multiple Lender Transactions, 112
___________________________________________
Banking L.J. 734 (1995); Note, Bankruptcy and the U.C.C. as
______________________________
Applied to Securitization, 73 B.U. L. Rev. 873 (1993); (2) to
_________________________
avoid regulatory lending limits, see, e.g., 12 C.F.R. 32.107
___ ____
(1985), thereby permitting lead banks to make more capital
available to important commercial clients, see Andrew Strehle,
___
Teaching Old Laws New Tricks: The Prospect for Loan Participation
_________________________________________________________________
Regulation, 13 Ann. Rev. Banking L. 421, 423-24 (1994); and (3)
__________
to generate fees from servicing and administering loans. See
___
____________________
5See generally Eric M. Schiller, Scott A. Lindquist, &
___ _________
Christopher Q. King, Current Issues in Loan Participation and Co-
____________________________________________
Lending Agreements, C974 ALI-ABA 457, 464 (1995) ("Generalizing
__________________
about enforcement of loan participation and co-lending agreements
is nearly impossible. Although there is some uniformity in terms
among these agreements, the resolution of any conflict will
necessarily turn almost entirely upon the precise terms of the
contracts, which may differ substantially from one transaction to
the next. Moreover, in applying legal standards prescribed by the
contracts, consideration of the facts and circumstances of each
individual case is necessary.").
12
generally First Nat'l Bank of Belleville v. Clay-Hensley Comm'n
_________ _______________________________ ___________________
Co., 525 N.E.2d 217, 219-20 (Ill. App. Ct. 1988) (describing
___
various "lead bank" incentives for negotiating participation
agreements).6 It cannot be ascertained conclusively solely
______
by scrutinizing the terms of the Agreement how much First
National was prepared to concede, in 1986, to obtain Den norske's
__ ____
agreement to advance $7.5 million and to assume a percentage of
the risk associated with the Glades Roads Note. Accordingly,
there is no reliable way to identify the particular economic
realities at work in the First National-Den norske loan partici-
pation relationship without recourse to extrinsic evidence. See
___
infra Section II.C.2.
_____
Finally, the cases First National relies upon as
support for its "economic reality" interpretation are inapposite.
In Carondelet, for example, the participation agreement was
__________
utterly silent as to the existence of an analogous minority-held
______
veto (over decisions whether to declare loan defaults), whereas
the Agreement in our case clearly incorporates a veto provision
( 11, 1), though its intended scope (i.e., pre- or post-
_____
default) is demonstrably ambiguous. Carondelet Sav. & Loan
_________ ________________________
Ass'n, 604 F.2d at 470; see also First Nat'l Bank of Louisville,
_____ ___ ____ ______________________________
933 F.2d at 470 (noting that minority participant's contract
interpretation "lacks textual support"). Moreover, the Seventh
____________________
6By contrast, minority participants look to limit credit
search and administration costs associated with making direct
loans or investments, see Note, 73 B.U. L. Rev. at 873, and to
___ ____
obtain higher interest rates on their investments, see Banco
___ _____
Espanol de Credito, 973 F.2d at 53.
__________________
13
Circuit ultimately discussed "economic realities" only in con-
junction with its review of the extrinsic evidence of custom and
_________ ________
usage credited by the factfinder, and not in connection with the
question whether the agreement was facially unambiguous as a
__ _
matter of law. Carondelet Sav. & Loan Ass'n, 604 F.2d at 470.
______ __ ___ _____________________________
Finally, Carondelet was an appeal from a final judgment for the
__________ _____ ________
lead bank following a bench trial, and not from a grant of
_____ _____
summary judgment. Id. at 468. There the factfinder's assessment
___
of extrinsic evidence would have been reviewed only for clear
error.
2. Extrinsic Evidence
2. Extrinsic Evidence
__________________
As the Agreement is amenable to more than one reason-
able interpretation, we must determine whether Den norske adduced
enough competent extrinsic evidence of the contracting parties'
intent to support a rational jury verdict in its favor. See
___
Blanchard, 958 F.2d at 491. The district court concluded that
_________
the extrinsic evidence proffered by Den norske could not support
a rational inference that 11 and 13 afforded Den norske a
post-default veto. Den norske Bank AS, 1993 WL 773796, at *4.
___________________
The Den norske extrinsic evidence pertains to the contract
negotiations and to "usage of trade" in the banking industry.
(a) Contract Negotiations
(a) Contract Negotiations
_____________________
Den norske adduced evidence that First National normal-
ly used its own standardized form contract for all its participa-
tion agreements in the mid-1980s, that First National's Florida-
based loan officers were permitted to customize these agreements
14
in negotiations with prospective minority participants, and that
Liska Langston, one of these loan officers, wrote a letter in
April 1986 noting that specific changes had been made to the
________ _______
First National-Den norske agreement. Langston highlighted the
changes on a copy of the "revised Participation Agreement,"
_______
including an entirely redrafted version of 11. Den norske
_________ __ ________ _________ _______ __ _ __
contends that this circumstantial evidence invites a rational
inference that it deliberately negotiated changes to the stan-
dardized version of 11 to assure itself a veto. See In re 604
___ _________
Columbus Ave. Realty Trust, 968 F.2d 1332, 1358 (1st Cir. 1992)
__________________________
(noting that, under Massachusetts contract law, specifically
negotiated contract terms normally control over standardized
__________ ____________
contract provisions) (citing Carrigg v. Cordeiro, 530 N.E.2d 809,
_______ ________
813 (Mass. App. Ct. 1988), review denied, 536 N.E.2d 612 (Mass.
______ ______
1989)).
First National responds that the extrinsic evidence
proffered by Den norske is insufficient, for two reasons. It
cites affidavits and depositions which attest that (i) the so-
called "revised" version of 11 actually was part of a standard-
ized First National form; or (ii) the negotiating officers
(including Liska Langston) could not recall having discussed any
_________
proposed 11 changes with Den norske in 1986. These conten-
tions, which bear on the weight to be given the circumstantial
______
evidence proffered by Den norske, do not undermine Den norske's
argument that genuine issues of material fact remain unresolved.
See Byrd, 61 F.3d at 1030.
___ ____
15
First, it is not at all surprising that a loan officer
might not recall the unrecorded details of a decade-old negotia-
__________
tion, such as particular oral conversations. Moreover, Langston
____ _____________
confirmed that her signature appears on the April 1986 letter
highlighting certain substantial "changes" and "revis[ions]" to
standardized form 11 arrived at through negotiation. Thus, the
authenticated, uncontradicted April 1986 letter signed by Lang-
ston could support a rational inference that Den norske had
proposed specific changes in 11, and that First National was
announcing its agreement with the Den norske counterproposal.
See Deposition Exhibit No. 6 (Langston Letter dated April 14,
___
1986) ("[A]dvise us as soon as possible if you concur [with these
"changes" and "revis[ions]].").
In the same vein, Den norske proffered participation
agreements it negotiated with lead banks other than First Nation-
al, wherein it consistently reserved a minority veto, as circum-
____________
stantial evidence that Den norske would not have intended that
its First National loan participation be any exception. See
___
Vadala v. Teledyne Indus., Inc., 44 F.3d 36, 39 (1st Cir. 1995)
______ ______________________
("Certainly the fact that there is a pattern of occurrences,
reflecting an apparent cause and effect sequence, can strengthen
the likelihood that the present case is one more in the pattern.
This is how human beings reason about circumstantial evidence.").
Coupled with other extrinsic evidence proffered by Den norske,
see infra Section II.C.2(b), these exhibits if admitted at
___ _____
trial and credited by the jury could contribute to a rational
16
inference that the contracting parties intended to depart from
the standardized First National form versions of 11 and 13 so
as to provide Den norske with a veto over any loan forgiveness
arrangement. See In re 604 Columbus Ave. Realty Trust, 968 F.2d
___ ____________________________________
at 1358.
(b) Usage of Trade
(b) Usage of Trade
______________
Den norske proffered extrinsic evidence pertaining
to the relevant 1985-86 period that it was common, industry-
_________
wide, to incorporate such minority participant veto powers over
____
loan forgiveness arrangements. The evidence took three forms:
(1) affidavits from current and former commercial loan officers
(viz., Den norske Vice President David Schwarz and former Vice
President Daniel deMenocal) based on their personal knowledge of
banking industry practices; (2) learned treatises on the banking
industry, see, e.g., Sandra Stern, Structuring Loan Participation
___ ____ ______________________________
1.05(1)(d), at 1-20 (1992) ("Typically, participation agree-
ments provide that the lead bank may agree to modification of the
loan documents [if the loan becomes delinquent] . . . as long as
__ ____ __
it does not reduce the amount of principal due . . . .") (empha-
__ ____ ___ ______ ___ ______ __ _________ ___
sis added);7 and (3) participation agreements negotiated by Den
____________________
7See generally Eric M. Schiller, Scott A. Lindquist, Chris-
___ _________
topher Q. King, Current Issues in Loan Participation and Co-
_______________________________________________
Lending Agreements, C974 ALI-ABA 457, 479-80 (1995) ("Most
___________________
participation agreements allow fairly broad discretion to the
lead lender on the issue of when to declare the loan in default
or initiate enforcement action. This is quite logical given that
the lead lender generally has the best understanding of the loan,
the borrower, and the current situation. However, the lead
lender's flexibility in dealing with loan defaults and remedies
may not be as broad as it might at first appear. For example,
the lead lender may be prohibited from waiving, releasing, or
__________
17
norske with other lead banks, wherein Den norske consistently
reserved such a veto. First National argues that this "usage of
trade" evidence is insufficiently probative, for three reasons.
First, it contends that Den norske's affiants were not
qualified to give expert testimony on banking industry practices.
We do not agree. Whatever may have been Schwarz' qualifica-
tions,8 deMenocal was a forty-year banking veteran (with Citi-
__________
bank and Den norske) who attested that he had (i) served as a
vice-president in charge of "large commercial loan transactions,"
(ii) had "become very familiar with participation agreements from
the perspective of both the lead bank and the participating
banks," and (iii) observed firsthand the "well established
industry custom[] and practice[]" to allow such minority-partici-
pant vetoes. Under Massachusetts law, this is the type of
testimony through which "usage of trade" is established. See,
___
e.g., Baccari, 199 N.E. at 916 (noting that "[t]he testimony of a
____ _______
witness who had been employed as a road builder for twenty-eight
____________
years was sufficient to warrant a finding of a usage, and that
_____
these parties contracted with reference to it," and observing
that the "credibility" of witnesses describing usages of trade
____________________
modifying material provisions of the loan documents, particularly
_________ ________ __________ ____________
payment provisions.") (emphasis added).
_______ __________
8First National argues that Schwarz is not competent to
provide expert testimony on "usage of trade" because he did not
deal frequently with loan participation agreements; thus, he
could not form a reliable opinion as to prevalent banking prac-
tices. Since deMenocal's qualifications, at least those dis-
closed in the summary judgment record, clearly were sufficient to
establish competence, we need not resolve the challenge to the
Schwarz affidavit.
18
ultimately is a factual question "for the master") (emphasis
_______
added); Barry v. Quimby, 92 N.E. 451, 453 (Mass. 1910) ("The
_____ ______
witness [on 'usage'] testifies to the existence of a fact from
actual knowledge, acquired through observation and experience in
the business . . . ."); Industrial Eng'g & Metal Fabricators,
_______________________________________
Inc. v. Fontaine Bros., 319 N.E.2d 726, 727-28 (Mass. App. Ct.
____ ______________
1974) (discerning no error in factfinder's reliance on affidavit
of person whose "recitation of his background and qualifications
affirmatively demonstrated his competence to testify of his own
personal knowledge on the factual issue of whether there was a
custom in the trade") (citation omitted); see also Leibovich v.
___ ____ _________
Antonellis, 574 N.E.2d 978, 982 (Mass. 1991) (noting that jury is
__________
arbiter of "soundness" of expert testimony, and that "[o]ne
factor in assessing the strength of expert testimony is the
expert's knowledge and experience"). First National has not
demonstrated to our satisfaction that deMenocal would not be
permitted to provide expert testimony at trial. See Fed. R.
___
Evid. 702, 703; Daubert v. Merrell Dow Pharmaceuticals, Inc., 113
_______ _________________________________
S. Ct. 2786 (1992) (noting that trial court serves "gatekeeper"
function in determining competency, qualifications, and "helpful-
ness" of expert testimony); see also United States v. Saccoccia,
___ ____ _____________ _________
58 F.3d 754, 781 (1st Cir. 1995) (same). Moreover, Den norske
cites to published treatises on standard banking practices,
excerpts from which may be admissible at trial in support of
deMenocal's testimony. See Fed. R. Evid. 803(18); Carondelet
___ __________
Sav. & Loan Ass'n, 604 F.2d at 470 (noting that defendant relied
__________________
19
on expert testimony and learned treatises to prove usage of
trade, in order to discern meaning of ambiguous language in loan
participation agreement).9
Second, First National argues that the expert testimony
proffered by Den norske merely represented self-serving state-
ments which would help their employer, since both affiants were
Den norske employees. Once again, however, we are not persuaded
that First National has demonstrated that the expert qualifica-
______ __________
tions of these affiants are undermined by their present and
_____
former association with Den norske so as to render their testimo-
ny inadmissible. Of course, such matters may bear heavily on
____________
witness credibility, bias, and the weight of the evidence. But
these are matters for the factfinder. See Newell Puerto Rico,
___ ___________________
Ltd. v. Rubbermaid, Inc., 20 F.3d 15, 23 (1st Cir. 1994); Leibo-
____ ________________ ______
vich, 574 N.E.2d at 982 (noting that it is "[t]he jury's func-
____
tion, vis-a-vis an expert witness, . . . to assess the soundness
and credibility of his opinions"). At summary judgment, more-
over, courts normally assume that the trier of fact would credit
the expert testimony proffered by the nonmovant (i.e., Den
norske). See Woodman v. Haemonetics Corp., 51 F.3d 1087, 1091
___ _______ _________________
(1st Cir. 1995); Affiliated FM Ins. Co., 626 N.E.2d at 882 ("The
______________________
____________________
9Of course, the claim that First National was unaware of the
"usage of trade" described by deMenocal is not controlling. See,
___
e.g., Berwick & Smith Co. v. Salem Press, Inc., 117 N.E.2d 825,
____ ___________________ __________________
827 (Mass. 1954) (noting that proof of defendant's "actual
knowledge" of usage is unnecessary; "`[w]here the usage is
established the presumption is that the parties contracted with
___________
reference to it'") (quoting Baccari, 199 N.E. at 916) (emphasis
_______
added).
20
existence and scope of a usage of trade are questions of fact.")
(citing Restatement (Second) of Contracts 222(2) (1981);
DiMarzo v. American Mut. Ins. Co., 449 N.E.2d 1189, 1201 (Mass.
_______ _______________________
1983)); see also U.C.C. 1-205(2).
___ ____
Finally, First National argues that the proffered
expert testimony is insufficiently probative of banking industry
practices because it merely evidences "that participants general-
ly attempt to negotiate such protections," not that they gener-
_______ _________
ally succeed in obtaining such concessions from the lead
_______
bank.10 Quite the contrary, the "typical" participation
agreement usage with which Den norske's experts were familiar,
and to which presumably they would testify, is that a minority
participant veto is the industry norm. Moreover, if First
National means to suggest that such "general" practices are not
probative as to whether it is more or less likely that particular
__________
contracting parties harbored such an intent, it is simply in
error. Cf. U.C.C. 1-205(2) (noting that "usage of trade"
___
includes "any practice or method of dealing having such regulari-
____ _________
____________________
10First National further argues that "demenocal is not
___
entirely supportive of Den norske's position," in that he assert-
________ __________
ed that it was "possible" that an "indirect" minority participant
might not have enough bargaining power to insist on a veto.
DeMenocal described an inapposite scenario called an "indi-
rect" participation in which an original lender participant
enters into a second and collateral participation agreement with
______
a "third bank" in order to allocate, inter se, the original
_____ __
participant's credit risk on the underlying loan. DeMenocal
correctly noted that the "third bank" in such a scenario would
have no direct contractual relationship with the borrower.
Although Den norske (like most "direct" loan participants)
likewise has no contractual relationship with the borrower
Glades Roads see supra note 2, it is in no sense the type of
___ _____
"indirect" participant described by demenocal.
21
ty of observance . . . as to justify an expectation that it will
__
be observed with respect to the transaction in question") (empha-
sis added); Carondelet Sav. & Loan Ass'n, 604 F.2d at 470 (noting
____________________________
that lead bank's extrinsic evidence of industry custom and usage,
in the form of witness testimony and treatises, was admissible
because it made it more "likely" that the contracting parties
would not have intended to use an ambiguously broad term like
"servicing" to exclude the lead bank's unilateral right to modify
the loan documents if the industry custom were otherwise);
Affiliated FM Ins. Co., 626 N.E.2d at 882 ("The existence and
_______________________
scope of a usage of trade are questions of fact.") (emphasis
_____
added). The precise function of "usage of trade" evidence is to
provide circumstantial proof of the contracting parties' intent.
______________
A party need not show that all participation agreements invari-
___
ably entitle minority participants to post-default vetoes. See
___
id. ("Where, as here, the contract language is ambiguous, evi-
___
dence of custom and trade practice may be admitted to arrive at
an interpretation `"which appears to be in accord with justice
and common sense and the probable intention of the parties."'")
________ _________ __ ___ _______
(citations omitted; emphasis added).11
____________________
11First National likewise cites Den norske's internal credit
manuals, which suggest that Den norske loan officers not agree to
minority participant vetoes in any participation agreement
negotiated for Den norske as lead bank. Viewed in the light most
__ ____ ____
favorable to Den norske, however, these manuals merely suggest
the obvious truth that it is likely that lead banks will almost
always negotiate to avoid a minority participant veto provision.
_________
See supra Section II.C.1 (discussing First National's "economic
___ _____
reality" theory). By contrast, "usage of trade" deals not with
contract negotiation, but with the "typical" end product included
___ _______
in negotiated loan participation agreements.
22
III
III
CONCLUSION
CONCLUSION
__________
We therefore conclude that Den norske adduced suffi-
cient competent extrinsic evidence which, if admitted at trial
and credited by the jury, could support a rational verdict in its
favor. The parties agree that the disposition of the breach of
contract claim controls the breach of fiduciary duty claim.
Consequently, the summary judgment entered on counts 1 and 2 must
___ _______ ________ _______ __ ______ _ ___ _ ____
be vacated. The case is remanded for further proceedings consis-
__ _______ ___ ____ __ ________ ___ _______ ___________ _______
tent with this opinion. Costs to appellant.
____ ____ ____ _______ _____ __ _________
So ordered.
So ordered.
__ _______
23
