Bank One Texas, N.A. v. A.J. Warehouse, Inc.

• Decision Date: 03 March 1992
• Docket Number: No. 91-1826,91-1826
• Citation: 968 F.2d 94
• Parties: BANK ONE TEXAS, N.A., Plaintiff, Appellee, v. A.J. WAREHOUSE, INC., et al., Defendants, Appellants. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 94

968 F.2d 94

22 Fed.R.Serv.3d 1319

BANK ONE TEXAS, N.A., Plaintiff, Appellee, v. A.J. WAREHOUSE, INC., et al., Defendants, Appellants.

No. 91-1826.

United States Court of Appeals First Circuit.

Heard March 3, 1992.

Decided June 30, 1992.

Bernard J. Bonn III, with whom John P. Dennis, Timothy C. Blank and Dechert Price & Rhoads, Boston, Mass., were on brief, for appellants.

Kathryn S. Shea, with whom John M. Harrington, Jr. and Ropes & Gray, Boston, Mass., were on brief, for appellee.

Before TORRUELLA, Circuit Judge, CAMPBELL and WEIS, ^* Senior Circuit Judges.

TORRUELLA, Circuit Judge.

The cast of characters in this case reads like a Garcia Marquez novel. It involves an appeal from a summary judgment issued by the United States District Court for the District of Massachusetts in favor of Bank One Texas, N.A. ("Bank One"), and against Leaseway Transportation Corporation and its related corporations, (collectively "the Companies"). ¹ The Companies allege that there are material issues of genuine fact which make summary judgment in this case inappropriate. We disagree and affirm the judgment of the district court.

FACTS

The Merger

Leaseway Transportation Corporation ("Leaseway"), is a holding company organized and existing under the laws of Delaware. Leaseway has approximately 70 subsidiaries at the present, from which it derives all of its revenue. Until June 25, 1987, Leaseway was a publicly held company with its capital stock listed on the New York Stock Exchange. On that date, LTC Acquisition Company, a wholly-owned subsidiary of Leaseway Holdings, Inc., ("Holdings"), was merged with Leaseway, and as a result of the merger, Leaseway became a wholly-owned subsidiary of Holdings. Holdings is a privately owned corporation.

The Loans

To obtain part of the funds to finance the referenced merger and to obtain additional working capital, revolving credit funds and letters of credit, Holdings, Leaseway and substantially all of Leaseway's subsidiaries, (i.e., the Companies), on June 25, 1987, executed and delivered a Revolving Credit Term Loan Agreement ("credit agreement"), to a consortium of 20 lending banks (collectively "the Banks"), including MBank Dallas, N.A., predecessor-in-interest to Bank One, with the First National Bank of Boston, as agent.

Since the date of its execution the credit agreement has been amended 18 times. In May of 1990, Credit Agricole replaced First National as the agent bank under the credit agreement as amended, and Pittsburgh National Bank became the administrative agent.

The Banks loaned the Companies the aggregate sum of $382,000,000, consisting of $230,000,000 in revolving credit loans and $152,000,000 in term loans. Each bank's revolving credit loan was subject to the terms and conditions of the credit agreement and was evidenced by a separate promissory note ("revolving credit note") payable to that bank. Similarly, each bank's term loan was subject to the credit agreement and was evidenced by a second separate promissory note ("term note") payable to the bank.

MBank Dallas' initial commitment was approximately 3% of the amounts loaned. Thus, MBank made a $10,440,000 revolving credit loan and a $4,560,000 term loan, for a total of $15,000,000. ² These notes were passed on by MBank to its successor, Bank One.

The Credit Agreement

The credit agreement was structured to permit ongoing credit advances to the Companies by the participating Banks. If a participating bank withdraws from providing ongoing credit advances under the credit agreement, thus reducing its commitment percentage to zero, it becomes a "terminating bank." A key provision of the credit agreement, for the protection of the "non-terminating banks," prevents terminating banks from interfering with the administration of the credit by providing, in section 14.2, that if for any reason a Bank receives any payment of past due principal or interest from the Companies, it may not retain any portion of the payment in excess of its "ratable share" of the payments received by all banks. Under the same section, each individual bank's "ratable share" of payments received under the credit agreement is defined as its "commitment percentage."

On December 31, 1989, Bank One became a terminating bank under section 2.2 of the credit agreement by reducing its "commitment percentage" under the credit agreement to zero when it refused to participate in further loans to the Companies under the credit agreement terms.

Loan Payments

Section 6.7 of the credit agreement requires that the Companies make all payments under the credit agreement, including those under the notes, to the administrative agent (Pittsburgh National Bank). The administrative agent then remits to each bank its pro rata share of the payment. The notes themselves also provide for direct payment to the agent bank.

On October 5, 1990, Credit Agricole, Bank One's agent bank, informed Bank One that under section 14.2 of the credit agreement Bank One's ratable portion of any payment from the Companies, as a terminating bank, was zero. Bank One responded on November 14, 1990, stating its disagreement with that position and thereafter, on November 26, 1990, demanded payment from the Companies in the amount of $1,774,834 which it alleged was the principal and interest past due. ³

On November 29, 1990, Credit Agricole wrote Bank One claiming that, pursuant to the credit agreement, if it received any payment from the Companies, it would be required "to distribute the entire payment to other Banks." Nevertheless, on December 4, 1990, the Companies replied to Bank One, supporting the administrative agent's position and adding that the Companies would be at risk to other Banks if they made any payment to Bank One without approval of the other Banks. ⁴

The Law Suit

On January 31, 1991, plaintiff-appellee, Bank One, filed this diversity action in district court against defendants-appellants, the Companies, i.e., Leaseway Transportation Corporation and its related corporations. The complaint alleges that the Companies owe Bank One accrued principal and interest under the credit agreement and the notes. ⁵ Bank One moved for summary judgment.

The Companies sought discovery relating to Bank One's negotiation, preparation and execution of the credit agreement and the notes, the obligations of the Companies under those documents, and the factual basis for the statements and contentions in the Edge affidavit. ⁶ The district court denied discovery.

The Companies filed a Motion to Dismiss on the grounds that Bank One had failed to join indispensable parties.

The district court denied the Companies' Motion to Dismiss, and ruled on the Motion for Summary Judgment without allowing discovery. It entered judgment in favor of Bank One in the amount of the past due principal, $3,258,287.54. 137 F.R.D. 631.

The Companies appeal.

STANDARD OF REVIEW

Summary judgment is proper when there is "no 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); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). The district court's grant of summary judgment is subject to de novo review by this court. Fowler v. Boise Cascade Corp., 948 F.2d 49 (1st Cir.1991); Catrone v. Thoroughbred Racing Assocs. of N.A., 929 F.2d 881, 884 (1st Cir.1991). We consider the facts in the light most favorable to the non-movant. See, e.g., Kennedy v. Josephthal & Co., Inc., 814 F.2d 798, 804 (1st Cir.1987).

LEGAL ANALYSIS

I. The Credit Agreement

Appellants submit that summary judgment should have been denied because there are genuine issues of material fact to be adjudicated. They specifically allege that the district court incorrectly concluded that the Companies' and all of the non-terminating banks' interpretation of section 14.2 of the credit agreement does not present an issue of fact. Rather, they claim, Bank One and the Companies directly dispute whether, under the credit agreement, Bank One is entitled to any payments at this time since Bank One is a terminating bank. Bank One asserts that it is entitled to payment, while the Companies contend that Bank One is not so entitled.

The credit agreement specifically provides that it is to be construed in accordance with Massachusetts law. ⁷ It is well settled in Massachusetts, with regard to written contracts,

that it is only where more than one view can be taken of the evidence respecting the circumstances of the parties and the condition of the subject with which they are dealing that a proper case arises for the jury, and that where, as here, there is no dispute as to the facts to be applied to the terms of the contract, the interpretation of the contract in their light is still to be treated as a question of law for the judge.

Ober v. National Casualty Co., 318 Mass. 27, 60 N.E.2d 90, 91 (1945) (citations omitted) (emphasis added). Moreover, "so long as the words of an agreement are plain and free from ambiguity, they must be construed in their ordinary and usual sense." McDonald's Corp. v. Lebow Realty Trust, 888 F.2d 912, 913-14 (1st Cir.1989) (citing J.A. Sullivan Corp. v. Commonwealth, 397 Mass. 789, 494 N.E.2d 374, 378 (1986)). Furthermore, a contract is to be construed so as to give reasonable effect to each of its provisions. J.A. Sullivan Corp., 494 N.E.2d at 378 (citing McMahon v. Monarch Life Ins. Co., 345 Mass. 261, 264, 186 N.E.2d 827 (1962)).

Having established the legal framework, we turn to the credit agreement at issue in the present case.

We recount at the outset the undisputed facts. It is undisputed that MBank Dallas, one of the banks, and the predecessor in interest to Bank One, and the Companies entered into a credit agreement. It is also undisputed that Bank One holds two notes subject to the terms of the credit agreement, both of which are past due, i.e., there is no question that the Companies are in default. As...