Dukes Bridge LLC v. Beinhocker
2017 U.S. App. LEXIS 8149
1st Cir.2017Background
- Beinhocker obtained financing from Aqua Blue (later Dukes Bridge) so a sub-trust could hold a multi‑million dollar life insurance policy as collateral while the insurer’s contestability period ran and the broker sought a purchaser.
- The financing was governed by a Specialty Finance Loan Agreement (borrower = the sub‑trust) that contained a broad non‑recourse clause protecting Beinhocker from personal liability and from claims on his assets.
- Separately, Beinhocker, Phillips (trustee), and Miller (sub‑trust trustee) signed a Non‑Contravention Agreement to induce the lender; it prohibited Beinhocker from encumbering the policy or taking loans against it and required him to indemnify/hold harmless the lender for breaches.
- Beinhocker caused Phillips to take a $200,000 policy loan without Miller’s consent, which led to the policy lapsing and the collapse of the transaction.
- Dukes Bridge sued for breach of the Non‑Contravention Agreement; the district court granted summary judgment for Beinhocker, concluding the Loan Agreement’s non‑recourse clause insulated him from liability.
- The First Circuit reversed, holding the Non‑Contravention Agreement may be enforced against Beinhocker in circumstances where he personally causes loss, and remanded for further proceedings (including consideration of substitution of MLSF LLC).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Loan Agreement’s non‑recourse clause bars Beinhocker’s liability under the Non‑Contravention Agreement | The non‑recourse clause cannot be used to nullify the Non‑Contravention Agreement; Dukes Bridge seeks summary judgment enforcing Beinhocker’s indemnity for his breach | The non‑recourse clause in the Loan Agreement protects Beinhocker from personal liability for obligations arising from the loan documents, including the Non‑Contravention Agreement | The court held the documents must be read together; non‑recourse applies to losses caused by borrower default without Beinhocker’s participation, but does not bar liability where Beinhocker personally caused the loss by breaching the Non‑Contravention Agreement |
| Whether the Non‑Contravention Agreement is a "Loan Document" encompassed by the non‑recourse clause | Dukes Bridge contends it was executed in connection with and accepted by the lender, but should not nullify the separate indemnity obligations | Beinhocker argued the Non‑Contravention Agreement falls within the Loan Agreement’s definition and is therefore covered by non‑recourse protection | The court agreed the Non‑Contravention Agreement was executed in connection with the loan and could be a Loan Document, but held that construing the contracts together permits enforcing the indemnity when Beinhocker personally causes loss |
| Whether Dukes Bridge has standing/substitution issues (MSLF LLC) affecting appellate posture | Dukes Bridge asks substitution of MLSF LLC (assignee) and urges merits review | Beinhocker challenges standing/substitution; district court did not resolve substitution because it granted judgment for Beinhocker | The First Circuit left substitution/standing for remand, reversing on the merits and directing reconsideration of substitution and summary judgment motions |
Key Cases Cited
- Tang v. Citizens Bank, N.A., 821 F.3d 206 (1st Cir. 2016) (standard of review for summary judgment)
- C.A. Acquisition Newco, LLC v. DHL Express (USA), Inc., 696 F.3d 109 (1st Cir. 2012) (contract interpretation standard)
- Fishman v. LaSalle Nat'l Bank, 247 F.3d 300 (1st Cir. 2001) (use of common sense in contract interpretation)
- J.A. Sullivan Corp. v. Commonwealth, 494 N.E.2d 374 (Mass. 1986) (contracts construed to give reasonable effect to each provision)
- Balles v. Babcock Power Inc., 70 N.E.3d 905 (Mass. 2017) (courts should not read contractual provisions out of agreements)
- Chelsea Indus., Inc. v. Florence, 260 N.E.2d 732 (Mass. 1970) (multiple agreements forming a single transaction are construed together)
- Stop & Shop, Inc. v. Ganem, 200 N.E.2d 248 (Mass. 1964) (justice, common sense, and probable intent guide contract construction)