Dukes Bridge LLC v. Beinhocker , 856 F.3d 186 ( 2017 )

United States Court of Appeals
For the First Circuit
No. 16-1520
DUKES BRIDGE LLC,
Plaintiff, Appellant,
STANLEY MILLER, Trustee of the
TPCS Corporation Irrevocable Life Insurance Sub-Trust,
Plaintiff,
v.
GILBERT D. BEINHOCKER,
Defendant, Appellee,
LEONARD PHILLIPS, Individually and as Trustee of the
TPCS Corporation Irrevocable Life Insurance Trust,
Defendant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Douglas P. Woodlock, U.S. District Judge]
Before
Barron, Circuit Judge,
Souter, Associate Justice,*
and Selya, Circuit Judge.
Shawn R. Farrell, with whom Cohen Seglias Pallas Greenhall
& Furman, P.C., was on brief, for Dukes Bridge LLC.
* Hon. David H. Souter, Associate Justice (Ret.) of the Supreme
Court of the United States, sitting by designation.
John P. Connelly, with whom Robert T. Ferguson, Jr., and
Hinckley, Allen & Snyder LLP were on brief, for Gilbert D.
Beinhocker.
May 8, 2017
Souter, J. Dukes Bridge LLC, a plaintiff in this
action for breach of contract, appeals the district court's
grant of summary judgment to defendant Gilbert D. Beinhocker.
We reverse and remand.
I.
The maze of detail in this transaction is lucidly
organized in the district court's opinion, but a limited
recitation of facts suffices for purposes of the appeal.
Beinhocker entered into the contract in question as one element
of a transaction to raise capital for his flailing business and
income for himself. The dealings among the parties involved
Beinhocker's purchase of a multi-million dollar life insurance
policy on his own life, to be held in trust for the two years
during which the insurer could contest the representation in his
policy application, then sold by the insurance broker to a third
party for a profit to Beinhocker, among others. As he lacked
the wherewithal to pay the policy premiums prior to the
anticipated sale, he obtained financing from a lender, Aqua Blue
Wealth Management, LLC, Dukes Bridge's predecessor in interest.
The several documents structuring the transaction
included a "Specialty Finance Loan Agreement," providing that
the lender would pay two years of the life insurance policy's
premiums. A trust was formed with Beinhocker's business
partner, Leonard Phillips, as trustee, and a sub-trust, whose
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trustee was the plaintiff Stanley Miller. The actual borrower
under the Loan Agreement was the sub-trust, which held the life
policy as collateral for the lender's protection.
As it concerns this appeal, the Loan Agreement
included a non-recourse provision, that in case of default the
obligations to the lender under the agreement could be satisfied
only from the collateral policy.1 It expressly protected
Beinhocker:
Notwithstanding any other provision of this
Specialty Finance Loan Agreement or any
other Loan Documents, Lender agrees that
under these Loan Documents there are not any
circumstances, including but not limited to
the recourse obligations of the Borrower
[Sub-Trust], under which . . . Beinhocker
will personally be responsible for any
obligations owed to the Lender . . . or the
Insured's [Beinhocker's] assets will be
subject to any claims, liens or judgments of
the Lender or any affiliates of the Lender.
The same day the Loan Agreement was executed,
Beinhocker, Phillips, and Miller entered into a "Non-
Contravention Agreement," with the stated purpose of
"induc[ing]" the lender to "enter into the Loan Agreement." The
Non-Contravention Agreement provided that Beinhocker would not
"contravene or take any action that will cause an event of
1
A second such clause is arguably of more limited scope, on the
basis of which Dukes Bridge argues its inapplicability to a
violation of the Non-Contravention Agreement, described below.
Given our conclusion that the relevant terms of that agreement
control on the issue of Beinhocker's personal liability, there
is no reason to delve into this issue.
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default under the Specialty Finance Loan Agreement or any other
contract, understanding, or commitment described in the Loan
Documents." Beinhocker would not "pledge, assign . . . , or
otherwise dispose of, or encumber with any Lien, the [life
insurance policy] without the prior, written consent of
[Miller]." Nor would Beinhocker "make any withdrawals from or
obtain any policy loans against the" policy without Miller's
consent. Beinhocker agreed to hold the lender "harmless"
against, and to "reimburse" it for, "any and all loss,
liability, or damage resulting from any breach or non-
fulfillment" of the Non-Contravention Agreement by Beinhocker,
and for any "assessments, judgments, out-of-pocket costs and
expenses, including without limitation, legal fees and expenses
incident to" such breach.
With these agreements in place, the original lender
paid the first-year premium on the life insurance policy, as
well as part of the second year's. Before the lender completed
the second-year payments, however, Beinhocker became nervous.
He worried that his insurance broker would have difficulty
finding a buyer for the policy, and would end up selling it to
"any anonymous party in Russia or Asia" who "would have a $10
million incentive to have [him] anonymously assassinated." To
assuage his fears, Beinhocker decided to sabotage the scheme.
Unbeknownst to Miller, he requested Phillips to take out a
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$200,000 loan against the life insurance policy, the amount they
had hoped to realize on its eventual sale. Phillips did so,
with the ultimate effect of causing the policy to lapse,
dismantling the entire arrangement.
Dukes Bridge (which by this time had succeeded to Aqua
Blue's position under the loan contract) then brought this
action against Beinhocker, alleging that in causing the $200,000
loan to be taken out against the life insurance policy, he had
violated the Non-Contravention Agreement, resulting in damages
to the lender.2 Each side moved for summary judgment. The
district court found there was no question about Beinhocker's
breach of the Non-Contravention Agreement but that he was immune
from liability under the quoted non-recourse provision in the
Loan Agreement. Accordingly, it entered summary judgment for
Beinhocker on the breach of contract claim. Dukes Bridge LLC v.
Beinhocker, No. 10-10877-DPW, 2012 WL 4324919, at *7-9 (D. Mass.
Sept. 19, 2012).
2 Dukes Bridge and Beinhocker are not the only parties to the
action. Miller, too, is a plaintiff, and Phillips a defendant.
The district court entered summary judgment against Miller, on
the ground that he cannot show damages from any breach of the
Non-Contravention Agreement. Dukes Bridge LLC v. Beinhocker,
No. 10-10877-DPW, 2012 WL 4324919, at *7 (D. Mass. Sept. 19,
2012). The district court entered summary judgment against
Phillips on Dukes Bridge's claim that Phillips, like Beinhocker,
breached the Non-Contravention Agreement. Id. at *8-9. Neither
of those judgments is at issue on appeal.
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Before this court, Dukes Bridge assigns error to the
district court's application of the non-recourse provision in
the Loan Agreement to immunize Beinhocker from liability. Dukes
Bridge submits that no genuine issue of material fact remains,
that the district court's entry of summary judgment for
Beinhocker should be vacated, and that summary judgment should
be entered in its own favor instead.
II.
Our review of the district court's summary judgment
for Beinhocker is de novo, Tang v. Citizens Bank, N.A., 821 F.3d
206, 215 (1st Cir. 2016), as is our examination of its
interpretation of the contracts in question, C.A. Acquisition
Newco, LLC v. DHL Express (USA), Inc., 696 F.3d 109, 112 (1st
Cir. 2012). We follow the parties' lead and apply the
substantive law of Massachusetts to the contract-law issues
raised in this diversity action. Cochran v. Quest Software,
Inc., 328 F.3d 1, 6 (1st Cir. 2003).
The principal issue raised by Dukes Bridge's appeal
requires resolution of the conflict between the previously
quoted non-recourse provision in the Loan Agreement and the
liability provisions of the Non-Contravention Agreement, each of
them executed as an element of the single loan transaction.3 As
3 We note Beinhocker's threshold argument that Dukes Bridge lacks
standing to respond to the merits of this appeal, owing to its
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noted, the Loan Agreement was between Dukes Bridge's assignor as
lender and Miller, the sub-trustee. Though Beinhocker was not a
signatory, he was obviously intended to be a third-party
beneficiary of the non-recourse clause relied upon by the
district court, and thus able to plead the clause as a defense
to liability where it applies.
We agree with the district court that it would apply
here if judged by its terms alone. The "[n]otwithstanding"
provision purports to place it in a superior position to any
source of obligation Beinhocker might incur to the lender under
the Loan Agreement "or any other Loan Documents." "Loan
Document" is defined in the Loan Agreement to include "all . . .
agreements . . . executed by the requisite Person(s) . . . in
connection with any of the foregoing [documents, which include
the Loan Agreement] and accepted . . . by the Lender." Like the
district court, we understand the Non-Contravention Agreement to
have been executed in connection with the loan and "accepted" by
Dukes Bridge's assignor, given the obvious object of the
disclosure that it has assigned its interest in the verdict to a
third party, MLSF LLC (not before the court). This position is
insufficiently substantial to call for extended examination.
Under Federal Rule of Civil Procedure 25(c), a party's standing
is determined by its position at commencement of the action,
when Dukes Bridge had not yet made the assignment. Although
Dukes Bridge moved to substitute MLSF LLC for itself in the
district court, the record indicates that Beinhocker opposed the
motion, which was not ruled upon, supposedly because of a fact
issue the court chose not to resolve in view of the judgment in
Beinhocker's favor. The motion may be addressed on remand.
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protection it provided to the lender and its express statement
that it was executed as inducement for the loan.
We part company with the district court, however, over
its assumption that the clear facial applicability of the non-
recourse clause is sufficient without further enquiry to negate
Beinhocker's exposure to liability to the lender under the Non-
Contravention Agreement. That agreement's emphatic centrality
to the complex transaction cannot be doubted. It was obviously
meant to guard against an act by Beinhocker that would sabotage
the overall transaction in favor of an immediate benefit to him.
Neither is there any uncertainty about its contemplated
applicability to the action of obtaining the loan against the
life insurance policy without Miller's consent, or about the
effect of that forbidden act in frustrating the entire
transaction and leaving the lender with the loss from which
Beinhocker had agreed to hold it harmless. Beinhocker freely
admits the breach of his agreement, and its consequences, as
just what he intended in order to obtain immediate cash and
eliminate the jeopardy to his life. There is, in sum, no
question that application of the non-recourse clause here leaves
Beinhocker's Non-Contravention Agreement a nullity as of the
moment he signed it as an inducement for the necessary loan.
To leave the matter there would exemplify a resolution
of conflicting contractual provisions that we conclude the law
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of Massachusetts would not condone. The key to determining
which provision should prevail here is the rule that in
construing contractual terms they must be read as a whole and
every one given effect so far as possible. See J.A. Sullivan
Corp. v. Commonwealth, 494 N.E.2d 374, 378 (Mass. 1986) ("A
contract is to be construed to give reasonable effect to each of
its provisions."); see also Balles v. Babcock Power Inc., 70
N.E.3d 905, 916 (Mass. 2017) (citing J.A. Sullivan for the
proposition that a court should not "read [a] provision" out of
a contract); Restatement (Second) of Contracts § 202(2) (1981)
("A writing is interpreted as a whole, and all writings that are
part of the same transaction are interpreted together."). The
courts of Massachusetts recognize that rule in circumstances
like those here, when a transaction is structured through
multiple contracts. See Chelsea Indus., Inc. v. Florence, 260
N.E.2d 732, 735 (Mass. 1970) ("The two contracts were part of a
single transaction. In construing them, weight must be given to
that circumstance."); see also Wilmot H. Simonson Co. v. Green
Textiles Assocs., 755 F.2d 217, 219 (1st Cir. 1985) (same)
(quoting Chelsea Indus.). That tenet of the Commonwealth's law
may readily be applied here to allow for the application of each
provision, owing to the range of facts that could produce the
damages alleged by the lender.
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Consider first the possibility that the sub-trustee-
borrower might default so as to cause loss and reduce or destroy
the value of the collateral policy without any participation by
Beinhocker, or even knowledge on his part. A change of
residence to Tahiti financed by loan proceeds might successfully
tempt a susceptible trustee, for example. If it did so without
any involvement by Beinhocker, there is no apparent argument
against applying the non-recourse provision to protect him from
a claim by the lender. But in the circumstance that Beinhocker
himself causes loss to the lender by violating the Non-
Contravention Agreement, it is likely that the parties to the
transaction would have understood that the hold-harmless terms
of that agreement would and should prevail, subjecting
Beinhocker to liability.
This resolution of the facial conflict by recognizing
reasonable spheres of respective applicability gives effect to
each set of terms and gives the parties and the drafters of the
documents credit for coherent thinking. See Stop & Shop, Inc.
v. Ganem, 200 N.E.2d 248, 251 (Mass. 1964) ("Justice, common
sense and the probable intention of the parties are guides to
construction of a written instrument."); see also Fishman v.
LaSalle Nat'l Bank, 247 F.3d 300, 302 (1st Cir. 2001) (stating,
in interpreting a contract subject to Massachusetts law, that
"[c]ommon sense is as much a part of contract interpretation as
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is the dictionary or the arsenal of canons"). We accordingly
hold the terms of the Non-Contravention Agreement entitled to
apply on the facts of this case, without nullification by the
Loan Agreement's non-recourse clause.
III.
The judgment for Beinhocker is reversed and the case
is remanded for reconsideration of Dukes Bridge's motion for
summary judgment and its motion to substitute MLSF LLC in its
place. Costs shall be taxed in favor of Dukes Bridge.
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