Navistar Financial Corp. v. White

961 F.2d 1565 (1992) | Cited 5 times | First Circuit | May 12, 1992

COFFIN, Senior Circuit Judge. This case concerns the repossession and sale of 23 yellow schoolbuses following default on the contracts of purchase.1 A jury found that Navistar Financial Corporation, the secured creditor, did not sell the collateral in a commercially reasonable manner, and that, consequently, the guarantors, Robert and Shirley White, did not have to pay the difference between the amount obtained from the bus sales and the outstanding debt on the contracts. Both parties appeal. After a careful review of the trial transcript and relevant caselaw, we affirm the case in its entirety.

I. Navistar's Appeal

Navistar claims that the jury's verdict was tainted by the trial Judge's improper legal rulings and jury instructions, and suffered from a lack of admissible evidentiary support. We consider each argument in turn.

A. Commercial reasonableness in a debtor's sale. Navistar argues that the court erred in allowing the jury to find that the sales price for the nine buses in Idaho was not commercially reasonable and that Navistar was responsible for the inadequate proceeds. The company asserts that the requirement of commercial reasonableness contained in Mass. Gen. Laws Ann. ch. 106, § 9-504 is triggered only when a secured party disposes of collateral and not when a sale -- like the one at issue here -- is arranged solely by the debtors or their agents.2 Consequently, Navistar disclaims any legal responsibility for the results of the Idaho sale. Moreover, the company points out that the debtors, Robert and Shirley White, signed a stipulation specifically agreeing that the sale was, in fact, commercially reasonable.

We reject Navistar's assertion that, as a matter of law, it bears no responsibility for the sale of the Idaho buses. To the contrary, we believe the jury properly could have found that the long delay in the sale following default, and the resulting lower price, were directly traceable to Navistar's actions. Although the company did not physically "dispose of collateral after default" -- to use the statutory language -- the jury could have found that its expressed intent to repossess the buses prevented other parties from taking prompt action to sell them and that this, in effect, put Navistar in control of the Disposition. The record clearly permitted the jury to discount Navistar's contention, made in its original and amended complaints, that it could not repossess and sell the Idaho buses because it could not find them. In these circumstances, we believe it permissible for a jury to hold Navistar responsible for a commercially unreasonable Disposition of the Idaho buses.

The stipulation signed by the Whites is not inconsistent with this Conclusion. It states only that, at the time of the sale in July 1989, the price and procedure were commercially reasonable. This acknowledgment in no way precluded the jury from finding that a higher price would have been obtained had Navistar handled the collateral properly in the months preceding the sale.

B. Duty to diligently pursue collateral. In an alternative challenge to the jury's finding on the Idaho bus sale, Navistar argues that Massachusetts law imposes no duty upon a secured creditor to diligently pursue repossession of collateral before proceeding against the debtor. We accept this statement of the law, see Acushnet Federal Credit Union v. Roderick, 26 Mass. App. 604, 608, 530 N.E.2d 1243, 1246 (1988), but reject Navistar's attempt to rely on it to disturb the jury's verdict.

Navistar's actions in this case reasonably could be viewed as manifesting a decision to repossess the Idaho buses and, as noted above, the jury could have found that these actions discouraged the Whites or Terrance Kirkman from taking prompt steps to sell the vehicles themselves. Thus, while Navistar may have had no initial obligation to pursue the collateral, a jury properly could find that its decision to do so created a duty to follow through in a good faith manner.3 See Mass. Gen. Laws Ann. ch. 106, § 1-203 ("Every contract or duty within this chapter imposes an obligation of good faith in its performance or enforcement."). The evidence amply supported the Conclusion that this duty was not fulfilled.4

C. Insufficient evidence of a "commercially reasonable" price. Navistar contends that the record contains no evidence in support of the jury's finding that the Idaho buses should have sold for an additional $51,750. When Navistar called Robert White in rebuttal, however, it elicited his opinion that the value of the buses as of September 2, 1988 was $99,000. The jury evidently credited this testimony, since the jury's finding on the value of the buses was precisely the difference between $99,000 and the amount obtained through the sale held in the summer of 1989 ($47,250). In light of White's testimony, we see no basis upon which to disturb the jury's finding.

D. Lay witness testimony on the Massachusetts bus sales. Navistar claims that the district court abused its discretion in allowing three lay witnesses to testify in support of the Whites' contention that the Massachusetts buses were not sold in a commercially reasonable manner. The company asserts a trio of problems with the witnesses' testimony: (1) they lacked expertise in liquidation sales; (2) they lacked knowledge of the condition of the buses at the time of sale, and (3) they failed to present evidence of specific deficiencies in the repossession sales. According to Navistar, the witnesses' testimony about market value was irrelevant and, in light of the above noted shortcomings, served only to confuse the jurors about whether the liquidation sales were commercially reasonable.

This assertion of error suffers from at least as many defects as Navistar ascribes to the witnesses' testimony. First, the market value of the buses, while not determinative of commercial reasonableness, certainly is relevant, see Nadler v. Baybank Merrimack Valley, 733 F.2d 182, 184 (1st Cir. 1984); In Re Zsa Zsa Ltd., 352 F. Supp. 665, 671 (S.D.N.Y. 1972), aff'd, 475 F.2d 1393 (2d Cir. 1973). See also Mass. Gen. Laws Ann. ch. 106, § 9-507(2). Second, three of the witnesses -- Kirkman, White and George Logan -- did have specific knowledge of the buses' condition at times relevant to the jury's determination. Third, while lacking substantial liquidation expertise, these witnesses collectively had vast experience as sellers and purchasers of used schoolbuses. Arguably, on the issue of an appropriate method and price for disposing of the buses, this was more relevant experience than that possessed by Navistar's witnesses, who were unaware of the standard guide used in the schoolbus industry for valuing used buses.5

Finally, the testimony of these witnesses highlighted a litany of specific deficiencies in Navistar's Disposition of the Massachusetts buses, including the long delay in offering them for sale (allowing them to deteriorate from idleness and to become a model year older); the failure to pursue Logan's favorable offer; the insistence on selling only to a Navistar dealer, and the failure to make a detailed list of the condition of the collateral shortly after repossession.

Accordingly, we find no abuse of discretion in the district court's decision to allow these witnesses to testify. Having disposed of each of Navistar's contentions of error, we affirm the judgment against it.

II. Whites' Appeal6

A. Post-trial motions seeking entry of judgment against Navistar for damages. We see no need to dwell on the Whites' contention that they should have been awarded the difference between the balance owing on their debt and the amount that, according to the jury, would have been credited to them had the 23 buses been sold in a commercially reasonable fashion. The Whites did not file a counterclaim at the outset of the litigation and, as the district court stated, "at no time during the course of the trial did defendants indicate that they intended to assert a claim for damages against plaintiff on the basis of the commercially unreasonable sales of buses." See Memorandum and Order, April 4, 1991, at 4. Because we agree with the district court that the Whites' attempt to collect from Navistar presents a materially different claim from their defense to Navistar's collection effort, we affirm its decision to deny their post-trial motion to amend.7 See Keeler v. Hewitt, 697 F.2d 8, 14 (1st Cir. 1982) (decision whether to allow amendment is within discretion of district court).

B. Rule 11 Sanctions. The Whites moved for sanctions against Navistar under Fed. R. Civ. P. 11, claiming that the company's February 16, 1988 complaint was, in material part, "false, misleading and frivolous." The motion cited Navistar's allegation in the complaint that it already had disposed of eleven of the Massachusetts buses when, in fact, the vehicles were not sold until later in the year.8

The district court denied the Rule 11 motion, noting on the face of the document that it was "denied after hearing this date." The docket entry states that the court denied the motion because "no supporting evidence of harm [was] submitted." The Whites argue on appeal that the court erred in denying the motion without making a specific finding on whether Navistar violated Rule 11, and further argue that the rule mandates a sanction when there has been a violation -- regardless of harm to the opposing party.

The parties do not cite to a transcript of the hearing apparently held on the motion, and so we do not know the full nature of the court's views on this issue. We do know, however, that the only falsity alleged in the motion concerned the prior Disposition of the Massachusetts buses, which -- at least for bookkeeping purposes -- had been transferred from one Navistar entity to another.9

From all that appears in the record, the district court handled this case in a consistently thoughtful and thorough manner. We therefore think it appropriate to infer from the brief docket entry not that the court neglected its responsibility to consider Navistar's culpability, but that it concluded that, all things considered (including an absence of harm to the Whites from the specifically alleged falsehoods), the motion for sanctions should be denied. On this record, we decline to second-guess the considered judgment of the trial Judge, who was in a far better position to evaluate Navistar's conduct than are we.

C. Attorney's Fees. The district court twice rejected the Whites' contention that they were entitled to an award of attorney's fees from Kirkman and Auto-Bus to compensate them for the costs of defending Navistar's suit. Substantially for the reasons expressed in the court's Memorandum of February 26, 1992, we agree with its judgment.

To summarize briefly, the claim for defense fees fails because the Stock Purchase Agreement did not by its terms create an enforceable obligation upon Auto-Bus, with breach consequences, to remove the Whites' guarantees from the bus loans. Indeed, the Agreement language -- "As of the closing, the COMPANY will have the personal Guarantys of ROBERT E. WHITE and SHIRLEY A. WHITE removed from any vehicle loans" -- suggests that the Whites, who were selling Auto-Bus, may have intended themselves to seek removal of their names as guarantors before the closing. This seems particularly likely in light of the Agreement's provision that, if removal could not be accomplished, Island Leasing and Boise Bus would step in with back-up guarantees and a hold-harmless promise to the Whites. Thus, the Agreement appears to protect the Whites in the event they remained as guarantors, not by promising damages from Auto-Bus, but by shifting the guarantee obligation onto Island Leasing and Boise Bus.

Because the Agreement does not appear to place liability on Auto-Bus in the event the Whites' guarantees were not removed, attorney's fees stemming from their role as guarantors are not recoverable against Auto-Bus under the promissory note.10 For similar reasons, the Whites' alternative argument, invoking Mutual Fire, Marine and Inland Ins. Co. v. Costa, 789 F.2d 83, 88-90 (1st Cir. 1986), is unavailing. See District Court Memorandum at 4-5.

For the foregoing reasons, the judgment of the district court is AFFIRMED.


For the foregoing reasons, the judgment of the district court is AFFIRMED.

1. Three different contracts covered the 23 buses.

2. Section 9-504 is titled "Secured Party's Right to Dispose of Collateral After Default; Effect of Disposition." Subsections (1) and (3) state, in relevant part: (1) A secured party after default may sell, lease or otherwise dispose of any or all of the collateral in its then condition or following any commercially reasonable preparation or processing. . . . . (3) . . . Sale or other Disposition may be as a unit or in parcels and at any time and place and on any terms but every aspect of the Disposition including the method, manner, time, place and terms must be commercially reasonable. (Emphasis added.)

3. This Conclusion follows from the holding in Acushnet. Although the secured party has "the choice of instituting an action on the debt without first looking to the security interest," 26 Mass. App. at 608, logic dictates that a decision to look first to the security interest must be carried out diligently so as not to prejudice the debtor's ability to dispose of the collateral himself for the best possible price.

4. We note, in particular, Navistar's implicit statement in its complaint that it could not repossess the buses because it could not find them, and its asserted belief that the debtor had "sold or otherwise disposed" of them. See Amended Complaint at P 7C. The Whites offered sufficient evidence suggesting that this statement was false.

5. Nadler does not mandate exclusion of the testimony given by the Whites' witnesses. In Nadler, we held that a debtor who lacked "any personal connection with liquidation sales" could not dismiss as "not qualified" a professional liquidator with 27 years of experience in furniture and liquidation. 733 F.2d at 184. In this case, the sale was not conducted by a professional liquidator and none of the witnesses for either side could be viewed as an expert in schoolbus liquidations. Accordingly, it was well within the district court's discretion to admit the Whites' evidence on alternative methods for selling used schoolbuses, and to let the jury decide whether Navistar's technique was commercially reasonable in light of this evidence. Navistar had the opportunity to discredit the testimony of the Whites' witnesses based on their lack of liquidation experience, but evidently failed to persuade the jury on this point.

6. In light of our Disposition of Navistar's appeal, we need not address the Whites' claim that they were entitled to judgment in their favor because of Navistar's failure to provide notice and reasonable opportunity to cure the default.

7. The Whites' suggestion that the jury had, in effect, resolved their requested counterclaim is unpersuasive. In the absence of a specific claim from the Whites, the jury did not need to be concerned about the precision of their calculations so long as they concluded that commercially reasonable sales of the 23 buses would have produced funds in excess of the amount owed by the Whites. We cannot say that, with a specific claim from the Whites for the excess, the jury would have settled upon the same sales prices.

8. The motion also asserted that an affidavit filed with Navistar's Motion for Approval of Real Estate Attachment was "false, misleading and frivolous in that [it] adopted as true the allegations of the Complaint."

9. Because it was not raised as a basis for the motion, we decline to consider at this time the significance of the allegation that Navistar could not locate the Idaho buses.

10. Like the district court, we find this Conclusion compelled by these circumstances, where the Whites sought to rely on such an obligation for the first time after trial and entry of judgment.

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