June 30, 1992 ____________________
No. 91-1826
BANK ONE TEXAS, N.A.,
Plaintiff, Appellee,
v.
A.J. WAREHOUSE, INC., ET AL.,
Defendants, Appellants.
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APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Rya W. Zobel, U.S. District Judge]
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Before
Torruella, Circuit Judge,
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Campbell and Weis, Jr.,* Senior Circuit Judges.
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Bernard J. Bonn III, with whom John P. Dennis, Timothy C.
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Blank and Dechert Price & Rhoads, were on brief for appellants.
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Kathryn S. Shea, with whom John M. Harrington, Jr. and
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Ropes & Gray, were on brief for appellee.
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* Of the Third Circuit, sitting by designation.
TORRUELLA, Circuit Judge. The cast of characters in
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this case reads like a Garc a M rquez 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
FACTS
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The Merger
The Merger
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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
The Loans
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To obtain part of the funds to finance the referenced
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1 There are a total of 71 defendants-appellants -- A.J.
Warehouse, et al.
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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
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$15,000,000.2 These notes were passed on by MBank to its
successor, Bank One.
The Credit Agreement
The Credit Agreement
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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
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2 While the complaint filed by Bank One says the term note was
in the amount of $4,506,000, the term note itself says the amount
due thereunder is $4,560,000. We cite the amount on the term
note. Further, appellants claim that the actual amount of the
credit revolving loan is $6,900,000. We cite the amount on the
revolving credit note -- $10,440,000. We note that since Bank
One is suing only for past due amounts, these discrepancies do
not present an issue of material fact.
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it refused to participate in further loans to the Companies under
the credit agreement terms.
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Loan Payments
Loan Payments
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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
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3 Bank One alleged that the Companies owed Bank One principal
payments under the term note in the amount of $800,000 as of
December 31, 1990, and in the amount of $974,834 under the
revolving credit note as of December 31, 1990.
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One without approval of the other Banks.4
The Law Suit
The Law Suit
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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
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4 Section 17 provides that the Companies jointly and severally
"agree to indemnify and hold harmless . . . each Bank . . . from
and against all damages [or] losses" resulting from transactions
contemplated under the terms of the Credit Agreement. In
addition, section 11.2 prohibits the Companies from permitting
any lien to be imposed on their assets except in accordance with
the provisions of the Credit Agreement.
The actions of Bank One can only result in the imposition of
liens on the Companies' assets which is inconsistent with the
terms of the credit agreement, and to the detriment of the other
non-terminating banks.
5 On July 19, 1991, despite earlier assertions that no interest
was owed, the companies paid interest to Bank One. The amounts
paid were $94,574.30 on the term note and $273,349.69 on the
revolving credit note. According to Bank One, these amounts
covered the period of December 31, 1990 to June 30, 1991 and were
actually higher than they should have been as per the bank's
calculations. Thus, the issue of interest is moot.
As of July 31, 1991, the past due and owing principal was
$1,499,999.90 under the term note, and $1,758,287.64 under the
revolving credit note for a total of $3,258,287.54. This is the
amount Bank One seeks to recover.
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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.
The Companies appeal.
STANDARD OF REVIEW
STANDARD OF REVIEW
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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
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Corp. v. Catrett, 477 U.S. 317, 322 (1986). The district court's
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grant of summary judgment is subject to de novo review by this
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court. Fowler v. Boise Cascade Corp., 1991 WL 217303 (1st Cir.
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1991); Catrone v. Thoroughbred Racing Assocs. of N.A., 929 F.2d
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881, 884 (1st Cir. 1991). We consider the undisputed facts in
the light most favorable to the non-movant. See, e.g., Kennedy
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v. Josephthal & Co., Inc., 814 F.2d 798, 804 (1st Cir. 1987).
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LEGAL ANALYSIS
LEGAL ANALYSIS
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I. The Credit Agreement
I. The Credit Agreement
Appellants submit that summary judgment should have
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6 Bank One filed its motion for summary judgment based on the
affidavit of Cheryl D. Edge, the keeper of records of Bonnet
Resources Corporation, an agent for Bank One, who had no personal
knowledge of the negotiation of the Credit Agreement.
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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
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is no dispute as to the facts to be
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applied to the terms of the contract, the
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interpretation of the contract in their
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light is still to be treated as a
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question of law for the judge.
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Ober v. National Casualty Co., 318 Mass. 27, 60 N.E.2d 90, 91
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(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
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Cir. 1989) (citing J.A. Sullivan Corp. v. Commonwealth, 397 Mass.
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7 See Credit Agreement, section 21.
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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
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McMahon v. Monarch Life Ins. Co., 345 Mass. 261, 264, 186 N.E.2d
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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 the district court found, Bank One
is clearly authorized under the plain terms of section 14.1 of
the credit agreement to bring suit for amounts past due against
any or all the borrowers in the event of default. More
specifically, section 14.1 of the credit agreement reads:
Rights of Banks. If any one or more of
Rights of Banks.
the Events of Default specified in 12
shall have occurred and be continuing,
and whether or not acceleration of the
Notes shall have occurred pursuant to
12, (a) any Bank may proceed to protect
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and enforce its rights by suit in equity,
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action at law and/or by other appropriate
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proceeding, whether for the specific
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performance of any covenant or agreement
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contained in this Agreement and, if the
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Notes shall have become due, by
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declaration or otherwise, proceed to
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enforce the payment of such Notes or any
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other of its legal or equitable rights
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. . .
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(Emphasis added). There is no ambiguity in the language of
section 14.1 and appellants point to no term giving rise to any
ambiguity. Instead they argue that section 6.7 directs the
Companies to make payment to the administrative agent. While
this is true, it is no less true that section 6.7 does not
operate in the event of default.8 It is sections 12 through 14
that address default specifically, with section 14.1 clearly
stating that in the event of default any bank may take legal
action against the borrowers and secure a judgment.
However, appellants argue that because Bank One is a
terminating bank whose commitment percentage is zero, it is not
entitled to any payment by the Companies. According to the
Companies' interpretation of section 14.2, Bank One is only
entitled to payment from the Companies if the Non-Terminating
banks consent, or if they are paid in full.
We find no language in section 14.2 that supports this
argument. In fact, section 14.2 would seem to indicate to the
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8 Section 6.7 reads:
Place and Mode of Payments. All payments
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due hereunder shall be made by the
Companies to the Administrative Agent at
its Head Office, in immediately available
funds by 12:00 noon Eastern time. . . .
Upon receipt by the Administrative Agent
of any such payment, the Administrative
Agent shall remit to each Bank on the
same day, its pro rata share of such
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payment. The Companies' payment of any
amount due hereunder to the
Administrative Agent shall conclusively
evidence their payment of such amounts
due hereunder.
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contrary:
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14.2. Set-Off. . . . Each Bank
further agrees with the other Banks that
if such Bank shall both (i) receive from
the Companies or from any other source
whatsoever, whether by voluntary payment,
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exercise of the right of set-off,
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counterclaim, cross action, or
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enforcement of any claim evidenced by the
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Notes or this Agreement, or by proof
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thereof in bankruptcy, reorganization,
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liquidation, receivership or similar
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proceedings, or otherwise, and (ii)
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retain and apply to the payment of the
amounts owing with respect to the Notes
or of any amounts due to such Bank under
this Agreement any amount which is in
excess of its ratable portion of the
payments received by all of the Banks,
then such Bank will make such disposition
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and arrangements with the other Banks
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with respect to such excess, either by
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way of distribution until the amount of
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such excess has been exhausted,
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assignment of claims, subrogation or
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otherwise, as shall result in each such
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Bank receiving in respect of its Notes
and the amounts due such Bank under this
Agreement its ratable share of all such
payments. For purposes of this 14.2,
each Bank's ratable share of payments
received hereunder shall be deemed to be
its Commitment Percentage of such
payments.
(Emphasis added). A close analysis of section 14.2 demonstrates
that the credit agreement envisioned a law suit by any bank in
the event of default. The purpose of this section is to specify
what portion of the payments made by any of the Companies to a
particular bank may be retained by that bank. This section
provides that if a bank receives a payment from a company and
such payment is in excess of that bank's "ratable portion of the
payments received by all the banks," then such bank will
distribute said excess among the other banks until the amount
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retained equals that bank's ratable share. Thus, section 14.2
anticipated that payment would be made to a bank directly, even
if said bank's commitment percentage was zero. Therefore, the
language of section 14.2 provided no suppport for appellants'
argument, since it only addresses how payments to the banks will
be shared or divided.
We find it significant that section 14.1 precedes
section 14.2 in the Credit Agreement, so that the agreement first
grants the banks the right to sue for any amount due to it under
the notes, and then, in section 14.2, it designates what portion
of the amount recovered may be kept by the bank. Thus, for
purposes of the present case, the language of section 14.2 is
irrelevant as no payment has yet been made. Section 14.2 goes
into effect only when payment is made.
Appellants also cite a letter from the agent bank in
support of their proposition. They claim that:
Credit Agricole asserted in various
letters to Bank One that because Bank One
was a Terminating Bank, as defined in the
Credit Agreement, it was not entitled to
any payments from the Companies.
any
Appellants' Brief at 21 (emphasis in original). We read Credit
Agricole's letter differently. In its letter to Bank One dated
November 29, 1990, the agent bank stated:
Please be advised that . . . if you
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receive any payments from the Companies
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pursuant to your demand, such payments
will be for the pro rata benefit of the
banks . . . 14.2 requires you to
distribute the entire payment to the
other banks.
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Letter of Credit Agricole, dated November 29, 1990 (emphasis
added). It is clear from the language of the letter that the
agent bank was well aware that Bank One may sue the Companies for
any amount owed under the notes. In fact as the letter reads:
"if you receive any payment from the Companies," -- it indicates
that the author envisioned the possibility of payment being
forwarded to the bank itself as a result of a court judgment.
Thus the letter simply served as a warning that if Bank One was
successful in recovering any money from the Companies, section
14.2 would come into effect and Bank One would be required to
share said money with the other banks. Nowhere in the letter
does the agent bank even suggest that Bank One was not entitled
to any payment.
The Companies suggest that if judgment is accorded Bank
One, they will be liable to the other banks in the case that Bank
One refuses to share the payments with the other banks as
directed by section 14.2. We find it unnecessary to enter into
such speculations to properly render a decision in this case.
The intent of the parties is clear from the plain
language of the Credit Agreement. Accordingly, as there are no
genuine issues of material fact, we affirm the decision of the
district court.
II. Denial of Discovery
II. Denial of Discovery
Appellants also appeal from the district court's order
denying discovery. Appellants sought discovery on the issue of
whether Bank One is presently entitled to any payments under the
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terms of the credit agreement.9 More specifically the
Companies urged the district court to allow discovery so as to
ascertain the intent of the parties when they entered into the
credit agreement.
To satisfy Rule 56(f), a party must "articulate a
plausible basis for the belief that discoverable materials exist
which would raise a trialworthy issue." Price v. General Motors
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Corp., 931 F.2d 162, 164 (1st Cir. 1991). The district court's
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denial of a Rule 56(f) motion is reviewable only for abuse of
discretion. Id. We note that "a court may grant summary
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judgment despite an opposing party's claim that discovery would
yield additional facts where the opposing party has not alleged
specific facts that could be developed through such discovery."
Taylor v. Gallagher, 737 F.2d 134, 137 (1st Cir. 1984).
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Thus, where like here, the intent of the parties is
clear and free from ambiguity from the plain language of the
agreement, discovery was not compelled. The only fact on which
appellants sought discovery was regarding the intent of the
parties when they entered into the Credit Agreement. However, as
we stated above, when the intent of the parties is clear from the
written language of the agreement, the interpretation of such
agreement is a matter of law for the judge to decide from the
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9 The Companies also sought discovery relating to the amount
allegedly borrowed from Bank One, the calculation of amounts
allegedly due and owing to Bank One, and if payments were due, to
whom such payments should be made. However, appellants have
offered no evidence to contradict the appellees assertions as to
each of these issues, accordingly the prima facie case of Bank
One stands uncontested.
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plain terms of the document. See Ober, supra, 60 N.E.2d at 91.
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Therefore we find no abuse of discretion on the part of the
district court in denying discovery.
III. Rule 19(a)
III. Rule 19(a)
Last, appellants submit that the district court erred
when it failed to dismiss Bank One's complaint for nonjoinder
pursuant to Rule 12(b)(7) and 19(a)(2) of the Federal Rules of
Civil Procedure. According to the Companies, the Banks were all
indispensable parties to the resolution of this dispute.
Under Rule 19(a)(2) a party is only necessary if:
(2) the person claims an interest
relating to the subject of the action and
is so situated that the disposition of
the action in the person's absence may
(i) as a practical matter impair or
impede the person's ability to protect
that interest or
(ii) leave any of the persons already
parties subject to a substantial risk of
incurring double, multiple, or otherwise
inconsistent obligations by reason of the
claimed interest.
Fed. R. Civ. P. 19(a)(2).
Appellants assert that under the factual inquiry
prescribed by Rule 19(a)(2), the Banks must be joined to fully
adjudicate this matter, though they are not holders of the notes
giving rise to this action.
In light of our previous analysis, we do not feel that
disposition of this action in the absence of the Banks would
leave the Companies subject to a substantial risk of incurring
double obligations. To so hold would necessarily require our
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entering into issues not relevant to the disposition of this case
-- essentially whether Bank One is obligated to share any payment
it receives from the Companies, and if so, whether Bank One will
share said payments. We do not reach, nor need we reach these
issues to fully adjudicate this matter. Nor are we impeding the
Banks from protecting any interest they might have in the
payments made to Bank One by not joining them to this action. In
fact, the district court noted in its Memorandum of Decision, 137
F.R.D. at 632 n.2, that "[a]lthough they are aware of it, the
other banks have yet to show any interest in participating in
this litigation." The reason for this is clear, the other Banks
will have no interest in this litigation until Bank One has
actually recovered the amount due. Thus, the Banks are not
necessary parties under 19(a) nor can they be indispensable
parties under 19(b). See Pujol v. Shearson American Express,
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Inc., 877 F.2d 132, 135, 138 (1st Cir. 1989).
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AFFIRMED.
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