Crellin Technologies, Inc. v. Equipmentlease Corp.

• Decision Date: 01 November 1993
• Docket Number: No. 93-1615,93-1615
• Citation: 18 F.3d 1
• Parties: CRELLIN TECHNOLOGIES, INC., Plaintiff, Appellant, v. EQUIPMENTLEASE CORP., Defendant, Appellee. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 1

18 F.3d 1

CRELLIN TECHNOLOGIES, INC., Plaintiff, Appellant, v. EQUIPMENTLEASE CORP., Defendant, Appellee.

No. 93-1615.

United States Court of Appeals, First Circuit.

Heard Nov. 1, 1993.

Decided March 8, 1994.

Jeffrey C. Schreck, with whom Neal J. McNamara and Flanders & Medeiros, Inc. were on brief, Providence, RI, for appellant.

Netti C. Vogel, with whom Vogel, Souls & Woodbine was on brief, Providence, RI, for appellee.

Before SELYA, Circuit Judge, BOWNES, Senior Circuit Judge, and CYR, Circuit Judge.

SELYA, Circuit Judge.

This appeal teaches that, just as "negotiations and love songs are often mistaken for one and the same," Paul Simon, Train in the Distance, on Negotiations and Love Songs (Warner Bros. Records 1981), so, too, negotiations and binding contracts readily can be confused. The lyrics follow.

I. BACKGROUND

Plaintiff-appellant Crellin Technologies, Inc. (Cretco), a Rhode Island corporation, sells, rents, services, and provides parts for lift trucks and other materials handling equipment. In 1990, Crellin suffered from a serious cash flow malady. In order to stanch the financial hemorrhaging caused by steep monthly payments to institutional lenders, Richard Crellin, Cretco's chief executive officer and part owner, began exploring various options. Crellin knew that, on occasion, defendant-appellee Equipmentlease Corporation (ELC), a Massachusetts firm, had provided financing for certain of Cretco's customers. Consequently, Crellin sought to interest an ELC representative, Mark Patterson, in structuring a sale and leaseback. ¹ Cretco proposed to sell its fleet of lift trucks to ELC and then lease back the fleet, keeping the equipment available for use in the ordinary course of Cretco's business. Cretco planned to apply some or all of the sale proceeds to pay down its institutional debt, thereby easing the cash flow crunch and enhancing the prospect that its principal lender, Old Stone Bank (Old Stone), would provide long-term financing on less onerous terms.

After reviewing what it thought were Cretco's complete financial statements, ² ELC agreed that a sale/leaseback transaction might prove feasible. In November of 1990, ELC prepared the paperwork that it needed to start a formal commitment process. But ELC's overtures went unrequited, for Old Stone had not agreed to release its security interest in the fleet. Thus, Cretco refused to sign ELC's documents.

During the period from November 1990 to February 1991, Cretco and ELC maintained an ongoing dialogue. Although Cretco now portrays these communications as reassurances that ELC was committed to a sale and leaseback, the trial court supportably found them to be mere expressions of a continuing mutual interest directed toward finding agreeable terms on which to do a deal of some undetermined magnitude.

In February of 1991, Cretco made its peace with Old Stone and received the long-awaited agreement for release of the bank's security interest. Cretco relayed the good news to ELC on or about March 1, and requested a meeting. On March 11, 1991, Richard Crellin travelled to ELC's Worcester (Massachusetts) office and signed papers prepared by ELC. At the same time, ELC executed subordination and option agreements prepared by Cretco. ³

The parties dispute the legal significance of these events. In one corner, Cretco contends that, in the March 1 call, Richard Crellin gave the green light to consummating the sale/leaseback contract negotiated between the parties in November 1990--and that he reinforced this clearance by executing the documents proffered to him on March 11. In the opposing corner, ELC contends that neither the March 1 telephone conversation nor the March 11 signing carried any legal weight; the call was purely informational and the documents were designed merely to restart the formal commitment process for a new, albeit resurrected, sale and leaseback. ELC points out that the proffered papers were in different dollar amounts and on different terms than the documents prepared in late 1990, and that, at any rate, it never signed them.

The record is at sixes and sevens regarding the reasons why ELC applied the brakes. Richard Crellin testified that ELC led him to believe that the documents would be signed soon after March 11, and Cretco viewed ELC's failure to do so as a breach of contract. ELC's witnesses told a much different story. They said ELC informed Richard Crellin that, in pursuance of its customary practice, the document package had to be submitted to ELC's funding source, BayBank, for approval before ELC would enter a firm agreement. According to these witnesses, a final set of contract documents ultimately would have been generated if, having been assured that funds were available, management made a binding decision to do the deal.

It is undisputed that ELC approached BayBank to supply the needed funds, and that BayBank turned thumbs down. Thereafter, ELC requested additional information from Cretco and submitted a revised request. BayBank again refused to open the purse strings, reportedly due to Cretco's anemic financial status. It was for this reason, then, that ELC decided not to go forward with a sale and leaseback.

To make a tedious tale tolerably terse, Cretco eventually invited ELC to honor what it perceived as a binding contract. ELC declined the invitation, saying that no contract ever existed. Invoking diversity jurisdiction, 28 U.S.C. Sec. 1332 (1988), Cretco sued ELC in the United States District Court for the District of Rhode Island. It charged, inter alia, that ELC ignored a binding obligation, ⁴ ] dishonored the implied covenant of good faith and fair dealing that formed part of the contractual relationship, and violated a Massachusetts unfair trade practices statute by deceptive dealing.

After a bench trial, the district judge found that appellant had not proven any of its three claims. On the breach of contract count, the judge determined that there had been no mutuality of obligation and, therefore, no binding contract. In this vein, he noted, inter alia, that Cretco had not purported to make a timely acceptance of ELC's proposal; that, throughout the negotiations, Cretco endeavored to keep any agreement contingent upon its ability to secure new (and more manageable) bank financing; that Cretco could not have sold the fleet without first obtaining Old Stone's consent to the release of its security interest--a consent that did not materialize in 1990; that, before litigation became an option of choice, Cretco had not viewed the November 1990 documents as binding; and that Cretco had shopped around in the ensuing months for a better interest rate. The judge found that ELC, too, had kept its powder dry, for it intended all along--though it had not informed Cretco about this contingency in the fall of 1990--to condition any sale and leaseback upon approval by its own funding source. Hence, since both parties believed the transaction to be contingent upon other occurrences, controllable by them--Cretco, for example, did not have to accede to Old Stone's terms, and, similarly, ELC did not have to accede to the terms demanded by its funding source--mutuality of obligation did not exist.

In a commendable effort to cover the waterfront, the judge identified an alternative ground for dismissing the contract claim. Even if one assumed, for argument's sake, that a contract had been formed and that ELC had broken it, Cretco's first count sought only compensatory damages, not specific performance, and Cretco had not proven that it suffered or sustained any recoverable damages.

Cretco's other two counts fared no better. In regard to good faith and fair dealing, the judge reasoned that, because no enforceable contract existed, there could be no breach of an implied covenant arising out of that non-contract. As to chapter 93A, the judge found that the deceptive practices of which Cretco complained, if they occurred at all, did not occur in the course of trade or commerce, and, therefore, did not transgress the cited statute.

Cretco appeals. We affirm.

II. THE BREACH OF CONTRACT CLAIM

We divide our discussion of this issue into segments, first addressing choice of law and then confronting the merits of appellant's claim.

A. Choice of Law.

It is, of course, a black-letter rule that state substantive law must be applied by a federal court sitting in diversity jurisdiction. See Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 822, 82 L.Ed. 1188 (1938). In determining what state law pertains, the court must employ the choice-of-law framework of the forum state, here, Rhode Island. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 491, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941); Putnam Resources v. Pateman, 958 F.2d 448, 464 (1st Cir.1992). Choice-of-law judgments are legal in nature, and courts of appeals exercise plenary oversight in respect thereto. See Soo Line R.R. Co. v. Overton, 992 F.2d 640, 643 (7th Cir.1993); Waggoner v. Snow, Becker, Kroll, Klaris, & Krauss, 991 F.2d 1501, 1505 (9th Cir.1993); Putnam Resources, 958 F.2d at 466. Consequently, a de novo standard of review obtains. ⁵

1. The Local Landscape. Rhode Island law anent contract conflict-of-law principles is sparse and leaves the proper choice-of-law test for contract cases shrouded in uncertainty. In 1969, Rhode Island's highest court made use of the lex loci contractus doctrine in such a context. See Union Sav. Bank v. DeMarco, 105 R.I. 592, 254 A.2d 81, 83 (1969) (holding a loan granted in Massachusetts to be a Massachusetts contract governed by Massachusetts law). Three years later the court, when asked to endorse the neoteric interest-weighing approach to contract conflict issues as enunciated in the Restatement (Second) of the Conflict of Laws Sec. 188 (1971) (hereinafter "Restatement"), expressly declined to choose between the new and the old choice-of-law rules. See A.C. Beals Co. v. Rhode Island Hosp., 110 R.I. 275...