Microfinancial, Inc. v. Premier Holidays Intern.

• Decision Date: 05 October 2004
• Docket Number: No. 04-1493.,04-1493.
• Citation: 385 F.3d 72
• Parties: MICROFINANCIAL, INC., et al., Plaintiffs, Appellees, v. PREMIER HOLIDAYS INTERNATIONAL, INC., et al., Defendants, Appellants.
• Court: U.S. Court of Appeals — First Circuit

385 F.3d 72

MICROFINANCIAL, INC., et al., Plaintiffs, Appellees, v. PREMIER HOLIDAYS INTERNATIONAL, INC., et al., Defendants, Appellants.

No. 04-1493.

United States Court of Appeals, First Circuit.

Submitted December 10, 2003.

Decided October 5, 2004.

Appeal from the United States District Court for the District of Massachusetts, Edward F. Harrington, J Stephen F. Gordon, with whom Leslie F. Su and Gordon Haley LLP were on brief, for appellants.

Richard J. McCarthy, with whom Brian H. Lamkin and Edwards & Angell, LLP were on brief, for appellees.

Before SELYA, Circuit Judge, COFFIN, Senior Circuit Judge, and LIPEZ, Circuit Judge.

SELYA, Circuit Judge.

Following a two-day bench trial, the district court adjudged defendant-appellant Premier Holidays International, Inc. and its principal, defendant-appellant Daniel DelPiano, jointly and severally liable for fraud, breach of contract, and breach of the covenant of good faith and fair dealing. The court awarded plaintiff-appellee Microfinancial, Inc. and its wholly-owned subsidiary, Leasecomm Corporation (hereafter collectively MFI) damages in the amount of $23,000,000. The defendants appeal, assigning error to the denial of a motion to stay and to the admission of certain expert testimony. Finding these assignments of error unpersuasive, we affirm the judgment below.

I. BACKGROUND

The background facts are straightforward. MFI is a Massachusetts corporation that operates a commercial finance business. On August 6, 1998, it entered into a business loan agreement with Premier, a Florida corporation engaged in the marketing of vacation packages. Pursuant to the agreement, MFI extended a $500,000 revolving line of credit and Premier executed a promissory note secured by DelPiano's personal guaranty and by all outstanding "consumer note agreements" (represented by Premier to be short-term notes executed by members of its vacation club and payable to it). The business loan agreement provided in substance that Premier's ability to draw down the line of credit at any given time would depend upon a formula that took into account the present value of consumer notes outstanding.

Over the course of the next year, the parties entered into additional agreements that gradually increased the available line of credit. Ultimately, MFI agreed to boost the credit line to $12,000,000, based on DelPiano's representation that Premier held approximately 19,000 consumer notes averaging $4,500 each (90% of which were current). To ensure that the proceeds of those notes would first be applied to pay Premier's debt to MFI, the parties established a so-called lock-box facility, serviced by NCC Business Services and its successor, Noble Enterprises (NCC/Noble). Under this arrangement, NCC/Noble was to receive the payments made by Premier's customers on the consumer notes, deposit the funds into designated accounts, and disburse loan payments to MFI from those accounts as they became due. NCC/Noble would then release any surplus funds to Premier.

As the draw-downs on the line of credit ballooned, MFI became increasingly concerned about the security of its loan. To allay this concern, Premier provided additional collateral in July of 1999. The additional collateral took the form of a financial performance bond underwritten by Sentinel Insurance Company (an independent insurer incorporated under the laws of Bermuda). Shortly after the bond was posted, MFI allowed Premier to exhaust the entire $12,000,000 line of credit.

On October 11, 1999, Premier missed a required payment of $241,000. MFI asked Premier for the funds. When Premier failed to honor its obligation, MFI turned to Sentinel, which defaulted on its bond. Invoking diversity jurisdiction, see 28 U.S.C. § 1332(a), MFI then brought suit against Sentinel in the United States District Court for the District of Massachusetts, alleging breach of contract. In short order, MFI added Premier and DelPiano as defendants.¹ Those parties, in turn, took the offensive and sued MFI in a Georgia state court. MFI removed the case to the United States District Court for the Northern District of Georgia, see id. § 1441, and asserted counterclaims for fraud, breach of contract, breach of the implied covenant of good faith and fair dealing, and the like. That suit was subsequently transferred to Massachusetts and consolidated with MFI's original action. See id. § 1404(a).

The case progressed slowly. Much of the delay was attributable to the defendants' foot-dragging vis-a-vis discovery and to a variety of other stalling tactics. While the litigation inched along, the district court issued a pretrial order on April 28, 2003. That order required, inter alia, that each party give notice of any objection to the qualifications of the other parties' experts on or before November 10, 2003. Neither Premier nor DelPiano filed any such objection.

Twenty-four days before the scheduled trial date, the defendants filed an emergency motion to stay the civil action. The motion made vague references to a grand jury investigation of DelPiano and Premier — an investigation that supposedly was "entwined" with MFI's claims against them. Although the defendants voiced Fifth Amendment concerns, the district court summarily denied the motion.

After the defendants unsuccessfully sought shelter in the bankruptcy court, a bench trial commenced. The district court took testimony over two days, reserved decision, wrote a thoughtful rescript, and found in favor of MFI against both defendants on the fraud, contract, and good faith and fair dealing claims. Microfinancial, Inc. v. Premier Holidays Int'l, Inc., No. 00-10105, slip op. at 13 (D.Mass. Mar. 8, 2004) (unpublished). The court also dismissed with prejudice all the defendants' claims against MFI. Id. The court entered judgment for MFI in the amount of $23,000,000 and this appeal followed.

II. ANALYSIS

On appeal, the defendants assign error to the district court's denial of their motion to stay and to the court's decision to permit the testimony of a financial expert, Gerald Killion, anent the lock-box facility. We consider each remonstrance in turn.

A. The Motion to Stay.

The defendants make two arguments — one procedural and one substantive — concerning the lower court's denial of their motion to stay. We start with their procedural argument: that the district court erred in failing to issue written findings of fact and conclusions of law in connection with its ruling. This argument is jejune.

In staking out this position, the defendants posit that Fed.R.Civ.P. 52(a) requires written findings of fact and conclusions of law in this sort of situation. The rule states in relevant part that "in granting or refusing interlocutory injunctions the court shall ... set forth the findings of fact and conclusions of law which constitute the grounds of its action." Fed.R.Civ.P. 52(a). The defendants suggest that the term "interlocutory injunctions" includes motions to stay. This conveniently capacious interpretation blithely overlooks the rule's admonition that "[f]indings of fact and conclusions of law are unnecessary on decisions of motions under Rule 12 or 56 or any other motion except as provided in subdivision (c) of this rule." Id. (emphasis supplied). Subdivision (c) is not relevant to a motion for a stay; it applies only to judgments made on partial findings during a bench trial. See Fed.R.Civ.P. 52(c).

The avowed purpose of adding this sentence to Rule 52(a) was to "remove any doubt that findings and conclusions are unnecessary upon decision of a motion." Fed.R.Civ.P. 52 advisory committee's note (1946 amendment). A plain reading of the added language places the defendants' motion for a stay within the category of "any other motion" (for which written findings of fact and conclusions of law are not required).

The case law confirms this intuition. Numerous opinions make a clear distinction between an injunction and a stay. For example, in holding that the denial of a stay was not appealable under 28 U.S.C. § 1292(a)(1), the Supreme Court stated that "[a]n order by a federal court that relates only to the conduct or progress of the litigation before that court ordinarily is not considered an injunction." Gulfstream Aerospace Corp. v. Mayacamas Corp., 485 U.S. 271, 279, 108 S.Ct. 1133, 99 L.Ed.2d 296 (1988). In the same context of appealability, this court has stated that the grant of a stay pending developments in a parallel action "is neither `final' nor equivalent to an `injunction.'" Acton Corp. v. Borden, Inc., 670 F.2d 377, 380 (1st Cir.1982). These decisions reinforce our conclusion that the plain language of Rule 52(a) means what it says.

That ends this aspect of the matter. We hold, without serious question, that the district court did not err in eschewing written findings of fact and conclusions of law in connection with its ruling on the defendants' motion to stay.

This brings us to the substance of the challenged ruling. It is apodictic that federal courts possess the inherent power to stay proceedings for prudential reasons. Landis v. N. Am. Co., 299 U.S. 248, 254-55, 57 S.Ct. 163, 81 L.Ed. 153 (1936); Marquis v. FDIC, 965 F.2d 1148, 1154-55 (1st Cir.1992). The pendency of a parallel or related criminal proceeding can constitute such a reason. See Hewlett-Packard Co. v. Berg, 61 F.3d 101, 105 (1st Cir.1995).

The decision whether or not to stay civil litigation in deference to parallel criminal proceedings is discretionary. Acton Corp., 670 F.2d at 380. Accordingly, we review the denial of a motion to stay for abuse of discretion. Arthurs v. Stern, 560 F.2d 477, 479-80 (1st Cir.1977). A movant must carry a heavy burden to succeed in such an endeavor. See Austin v. Unarco Indus., Inc., 705 F.2d 1, 5 (1st Cir.1983) (explaining that the movant must demonstrate "a clear case of hardship" to be entitled to a discretionary stay).

There is no question that a trial judge can facilitate the appellate...