Public Service Companyof New Hampshire,debtor, Appellee, v. Hudson Light and Power Department and Peabody Municipallight Plant, Defendants, Appellants.public Service Co. of New Hampshire, Debtor, Appellee, v. Hudson Light and Power Department, et al., Defendants, Appellees,west Boylston Municipal Light Plant, Defendant, Appellant.public Service Co. of New Hampshire, Debtor, Appellant, v. Hudson Light and Power Department, et al., Defendants, Appellees, 938 F.2d 338 (1st Cir. 1991)

Appellants are three municipal utilities which challenge the disallowance of their claims against Public Service Company of New Hampshire ("PSNH") as alleged intended beneficiaries under certain agreements between PSNH and the Massachusetts Municipal Wholesale Electric Company ("MMWEC"), a Massachusetts public corporation authorized to secure sources of electric power for sale to various utilities.¹  We affirm.

* BACKGROUND

In 1976, MMWEC and PSNH entered into an Agreement for Joint Ownership, Construction and Operation of New Hampshire Nuclear Units ("Joint Operating Agreement" or "JOA"), which entitled MMWEC to an ownership interest in the Seabrook, New Hampshire nuclear energy facility, and imposed certain management responsibilities on PSNH. In conjunction with the JOA, MMWEC and PSNH subsequently entered into an Agreement for the Sellback of Seabrook Capacity and Related Energy ("Sellback Agreement") whereby PSNH agreed to purchase, at MMWEC's request, a portion of the capacity and related energy accruing to MMWEC under the JOA. Seabrook's construction delays and regulatory difficulties led to legal disputes between MMWEC and PSNH as to their respective obligations under the JOA, which were resolved in a Memorandum of Understanding releasing PSNH from all obligations under the Sellback Agreement and from any claims by MMWEC relating to PSNH's management of Seabrook. Appellants attempted, without success, to prevent implementation of the Memorandum of Understanding, both in the bankruptcy court and in the courts of Massachusetts.

Ultimately, appellants filed proofs of claim in the PSNH chapter 11 reorganization proceeding, asserting rights as intended beneficiaries under the JOA and the Sellback Agreement between PSNH and MMWEC.²  On February 16, 1989, PSNH filed a motion for partial summary judgment, demanding disallowance of that portion of Hudson's proof of claim which is based on Hudson's alleged status as an intended beneficiary under the Sellback Agreement and JOA. The motion for partial summary judgment on Hudson's intended beneficiary claim ultimately was opposed by Hudson and fourteen other Massachusetts utilities, including appellants Peabody and West Boylston, all of which had filed proofs of claim based exclusively on their alleged status as intended beneficiaries under the Sellback Agreement and JOA.

At the hearing on March 17, 1989, it was agreed by all parties, with the express approval of the bankruptcy court, that the PSNH motion for partial summary judgment against Hudson would be deemed a motion for disallowance of the intended beneficiary claims of the fourteen other claimants as well. At the conclusion of the March 17 hearing, the motion for partial summary judgment was granted from the bench. On March 22, the clerk of the bankruptcy court docketed an order granting partial summary judgment against all fifteen claimants.³ 

On March 30, Hudson and Peabody filed a motion for reconsideration of the March 22 order, which had the unintended effect of nullifying their simultaneous notice of appeal.⁴  In re Public Service Co. of New Hampshire, 898 F.2d 1, 1-2 (1st Cir. 1990). See Bankruptcy Rule 8002(b) ("A notice of appeal filed before the disposition of [a motion for reconsideration] shall have no effect; a new notice of appeal must be filed.").⁵ 

Thereafter, Hudson and Peabody, as well as West Boylston, submitted a request for certification of the finality of the March 22 order, see Bankruptcy Rule 7054(a); Fed. R. Civ. P. 54(b), which was granted by the bankruptcy court and entered on its docket August 14, 1990. Appellants promptly filed notices of appeal. The district court affirmed the summary judgment in favor of PSNH, thus disallowing appellants' intended beneficiary claims, and this appeal followed.

II

DISCUSSION

PSNH contends at the outset that the appeals to the district court were time-barred, as the March 22 order granting partial summary judgment to PSNH, and disallowing the intended beneficiary claims of all fifteen claimants, became final on entry, and the only arguably efficacious notices of appeal were not filed until almost seventeen months later. Appellants counter that the March 22 order did not become final until August 14, 1990, when the bankruptcy court entered its certification of finality, pursuant to Bankruptcy Rule 7054(a) and Fed. R. Civ. P. 54(b), together with the separate document required by Bankruptcy Rules 7054(a), 9021 & 5003(a) and Fed. R. Civ. P. 54(a) & 58. We need not address the jurisdictional claims, however, as our review demonstrates that PSNH must prevail on the merits in any event. See Norton v. Mathews, 427 U.S. 524, 532, 96 S. Ct. 2771, 2775, 49 L. Ed. 2d 672 (1976) (reserving difficult jurisdictional issue where case would be "resolved on the merits in favor of the same party"). See also United States v. Parcel of Land with Building, 928 F.2d 1, 4 (1st Cir. 1991); Caribbean Transp. Sys., Inc. v. Autoridad de Las Navieras, 901 F.2d 196, 197 (1st Cir. 1990).

After entering into individual Power Sales Agreements ("PSAs") with 33 municipal utilities in 1979, MMWEC set about acquiring a six percent interest in Seabrook ("Project Six"). The PSAs entitle each participating utility to a prescribed portion of Project Six capacity from MMWEC and obligate the participating utility to remit monthly payments for its ratable share of Project Six costs--notably including MMWEC bond service--even during periods when Project Six is not generating power. Thus, the PSAs were structured to enable MMWEC to raise approximately $335,000,000 with which to finance its acquisition of Project Six through the issuance of tax exempt bonds.⁶ 

MMWEC represented to prospective Project Six participants that it would be entering into a collateral agreement--the Sellback Agreement--whereby PSNH would agree to purchase a substantial portion of Project Six capacity should MMWEC wish to sell. MMWEC covenanted in each PSA to use its "best efforts" to "sell and transfer" any portion of the participant's share of Project Six capacity deemed excessive by the participant. PSNH was cognizant of MMWEC's "sales pitch" to Project Six participants.

Appellants assert rights as intended beneficiaries under the Sellback Agreement,⁷  which provides that Massachusetts law shall govern its interpretation. Massachusetts decisional law comports with the third party beneficiary rules in Restatement (Second) of Contracts Sec. 302, see Rae v. Air-Speed, Inc., 386 Mass. 187, 435 N.E.2d 628, 632 (1982):

(1) Unless otherwise agreed between promisor and promisee, a beneficiary of a promise is an intended beneficiary if recognition of a right to performance in the beneficiary is appropriate to effectuate the intention of the parties and either

(a) the performance of the promise will satisfy an obligation of the promisee to pay money to the beneficiary; or

(b) the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance.

(2) an incidental beneficiary is a beneficiary who is not an intended beneficiary.⁸ 

Restatement (Second) of Contracts Sec. 302 (emphasis added). As appellants make no claim that performance by PSNH under the Sellback Agreement would satisfy an obligation on the part of MMWEC to pay money to appellants, see Sec. 302(1) (a), Rae, 435 N.E.2d at 632, we address their intended beneficiary claims under section 302(1) (b).⁹ 

Under subsection 302(1) (b), the promise and its circumstantial setting must evince an intent on the part of the promisee to confer the benefit of the promised performance on the would-be beneficiary. "In such cases, if the beneficiary would be reasonable in relying on the promise as manifesting an intention to confer a right on him [to enforce the promise], he is an intended beneficiary." Restatement (Second) of Contracts Sec. 302 commend (emphasis added) (quoted in Rae, 435 N.E.2d at 633 n. 3). It is clear from the focus of the section 302(1) inquiry that the requisite manifestation of the parties' intent may be evinced in the context, as well as the text, of the contract. See Choate, Hall & Stewart v. SCA Serv., Inc., 378 Mass. 535, 392 N.E.2d 1045, 1051 (1979) ("We search for indicia of intention against the background of the transaction.") (citing preliminary draft of Restatement (Second) of Contracts Sec. 302).¹⁰ 

The structure of the performance required under the particular contract often provides the critical indicum of intent in third party beneficiary cases. Unless the performance required by the contract will directly benefit the would-be intended beneficiary, he is at best an incidental beneficiary. See Choate, 392 N.E.2d at 1052; Continental Bronze Co. v. Salvo & Armstrong Steel Co., 8 Mass.App. 799, 397 N.E.2d 1143, 1146 (1979); cf. Gilmore v. Century Bank & Trust Co., 20 Mass.App. 49, 477 N.E.2d 1069, 1074 (1985). In the Choate case, for example, the Supreme Judicial Court of Massachusetts ("SJC") concluded that contractual terms requiring payment directly to the would-be intended beneficiary were pivotal to determining whether the contracting parties intended to benefit the third party. Choate, 392 N.E.2d at 1052.¹¹ 

A few months after Choate, the Massachusetts Appeals Court entertained a materialman's intended beneficiary claim against a surety which had agreed to hold a general contractor harmless from claims incurred by subcontractors. See Continental Bronze, 397 N.E.2d at 1144. Analyzed in its setting, the indemnity contract was found to require performance directly to the general contractor, not to the subcontractors' creditors. Distinguishing Choate, the Continental Bronze court held that the plaintiff-materialman was "exclude[d] ... at the threshold from intended beneficiary status," since "the terms of the promised performance ... are restricted ... to benefit the general contractor." Id. 397 N.E.2d at 1146. Ever since Choate and Continental Bronze, Massachusetts courts steadfastly have refused to accord intended beneficiary status under a contract whose terms, interpreted in the particular transactional setting, do not provide for the benefits of performance to flow directly to the third party. See Town of Northbridge v. Town of Natick, 394 Mass. 70, 474 N.E.2d 551, 555 n. 3 (1985); First Hartford Realty Corp. v. Corporate Property Investors, 12 Mass.App. 911, 423 N.E.2d 1020, 1022 (1981) (applying New York law and Restatement (Second) of Contracts Sec. 302). See infra note 16. We have discovered no Massachusetts decision sustaining an intended beneficiary claim where the promised performance would not directly benefit the third party.¹² 

The intended beneficiary claims in the instant case fail as a matter of law. The language employed in the Sellback Agreement, as well as the setting of its negotiation, execution and anticipated performance, evince the plain intention of the contracting parties not to confer on appellants a right to performance of PSNH's promise to MMWEC. Although it was clear from the start that appellants in all probability would derive benefit from PSNH's promised performance under the Sellback Agreement, there was never any question that: (i) PSNH was required to purchase no Project Six capacity except at the option of MMWEC; (ii) PSNH was required to direct all payments under the Sellback Agreement to MMWEC; and (iii) PSNH and MMWEC retained the exclusive right to modify the Sellback Agreement at any time. Consequently, PSNH could render full performance under the Sellback Agreement in every particular without appellants necessarily realizing any direct or indirect benefit whatever. The Sellback Agreement merely required PSNH to purchase portions of Project Six capacity at MMWEC's option, and it was for MMWEC, not PSNH, to allocate any benefits from PSNH's performance among the 33 Project Six participants. Thus, performance of PSNH's promise was in no manner contingent upon any consequential benefit to appellants, direct or indirect.¹³  See 4 A. Corbin, Corbin on Contracts Sec. 779D at 45-46 and Sec. 800 at 174-175 (1951) (promise cannot be considered "intended" for benefit of third persons where its performance would not necessarily benefit them, as where benefit to third persons depends on intervening voluntary action of promisee).

Our analysis of other Massachusetts cases corroborates the incidental character of any third party benefits under the Sellback Agreement. An apt example is Choate, 392 N.E.2d 1045, where the plaintiff law firm was retained by one Steir, a former director of the defendant corporation which had agreed to hold Steir harmless from certain legal expenses. A dispute between the indemnitee, Steir, and the indemnitor corporation prompted the latter to refuse performance. Id. at 1047-48. The plaintiff law firm was held to be an " 'intended' beneficiary of the 'creditor' type" because the indemnity contract, viewed in the context from which it emerged, provided for payments "direct" to plaintiff. Id. at 1052.¹⁴ 

The Choate transaction is indistinguishable from the present case in all material respects,¹⁵  except that neither the text nor the context of the Sellback Agreement is reasonably susceptible to the interpretation that the benefits of performance were to run directly to the appellants. Unlike the plaintiff in Choate, appellants were not intended beneficiaries under the Sellback Agreement, since the performance promised by PSNH would neither necessarily nor directly benefit appellants.¹⁶ 

Even assuming that the express provisions of the Sellback Agreement directing the benefits of performance to MMWEC would not preclude intended beneficiary status "at the threshold," Continental Bronze, 397 N.E.2d at 1146, there are several other indicia of the contracting parties' intent that appellants were to be mere incidental beneficiaries.

First, the Sellback Agreement expressly provides that it may be modified simply by agreement of the parties. Sellback Agreement art. XVI, p d ("This Agreement may be modified only by an instrument in writing signed by the duly authorized representatives of the Parties hereto."). Thus, whatever derivative rights appellants may have anticipated under the Sellback Agreement were explicitly made subject to extinguishment at the exclusive option of PSNH and MMWEC. Any right of recourse on the part of the appellants would have been for possible breach of MMWEC's "best efforts" covenant in the PSAs. Any reliance on the Sellback Agreement as manifesting an intention on the part of MMWEC and PSNH to confer rights on appellants would not have been reasonable.¹⁷ 

Second, a third party right of enforcement under the Sellback Agreement would be inconsistent with the particular sellback arrangement structured by the parties. MMWEC was much more than a token intermediary between PSNH and the individual Project Six participants. For example, the Sellback Agreement requires yearly notice to PSNH as to the total amount of Project Six capacity MMWEC will require PSNH to purchase during the ensuing sixty months.¹⁸  Thus, at least annually, MMWEC would need to (i) obtain one to five year commitments from the individual participants to sell a portion of their respective shares of Project Six capacity, and (ii) apportion among the participants the benefits accruing from MMWEC's sale of Project Six capacity to PSNH.

Finally, the attempt by appellants, as supposed intended beneficiaries, to impede MMWEC's exercise of its exclusive contractual right to enter into an agreement with PSNH to modify the Sellback Agreement cannot be reconciled with the legal and financial environment in which the Sellback Agreement and the PSAs were negotiated, executed, and to be performed. MMWEC was authorized to raise capital only through recourse to the tax exempt bond market, 1975 Massachusetts Acts ch. 775, Secs. 8(a) & 9.¹⁹  The contractual and regulatory constraints peculiar to the domain of public utility finance confirm our conclusion that the Sellback Agreement and the PSAs were designedly structured to enable MMWEC to obtain the bond financing upon which its ability to secure sources of electric power for its member utilities was entirely dependent. In these circumstances, appellants' initiative would not only alter the legal ground rules expressly endorsed by the parties to the Sellback Agreement and all parties to the PSAs, but realign the financial obligations upon which bondholders, nonparties to either the Sellback Agreement or the PSAs, relied. The conclusion that a nonparty possessed the right to prevent the contracting parties from exercising their exclusive option to modify the Sellback Agreement would undermine MMWEC's ability to borrow and repay capital. Thus, it cannot reasonably be inferred that MMWEC, let alone PSNH, intended to confer on appellants a right to performance under an agreement which expressly establishes a bilateral contractual relation.²⁰  Cf. Restatement (Second) of Contracts Sec. 302 comment d (when manifestation of intention to confer a right is uncertain, court may look to factors independent of the parties' intention, such as overriding policy). Moreover, given the customary contractual and regulatory constraints prevalent in the legal and financial setting in which the Sellback Agreement and the PSAs were to be performed, appellants could not reasonably imply a right to enforce performance by PSNH which did not comport with the express terms of the parties' agreement.

As the record before the bankruptcy court raises no genuine issue of fact material to appellants' asserted status as intended beneficiaries under the Sellback Agreement, and as PSNH was entitled to judgment as a matter of law, the entry of summary judgment was proper. See Siegal v. American Honda Motor Co., 921 F.2d 15, 17 (1st Cir. 1990).

Appellants attempt to interpose a promissory estoppel claim as an alternative basis for their asserted right to performance under the Sellback Agreement. Appellants predicate their promissory estoppel claim not on Massachusetts decisional law but exclusively on the caselaw of the supreme courts of Hawaii and Wisconsin, which have permitted a third party action against a promisor where it appears that the third party foreseeably and detrimentally relied on the promise. See Silberman v. Roethe, 64 Wis.2d 131, 133, 218 N.W.2d 723, 731 (1974); Ravelo v. County of Hawaii, 66 Haw. 194, 658 P.2d 883, 887 (1983). Appellants neither cite to relevant Massachusetts authority nor attempt to demonstrate that the SJC, given the opportunity, would extend the doctrine of promissory estoppel to nonparties;²¹  indeed, our research has disclosed that only five courts have taken the suggested step. See Ravelo, 658 P.2d at 887; Silberman, 218 N.W.2d at 731; Dallum v. Farmers Union Central Exchange, 462 N.W.2d 608, 613-14 (Minn.App.1990); Burgess v. California Mut. Bldg. & Loan Assoc., 210 Cal. 180, 290 P. 1029, 1031-32 (1930); Lear v. Bishop, 86 Nev. 709, 476 P.2d 18, 22 (1970). See generally Metzger & Phillips, Promissory Estoppel and Third Parties, 42 Sw.L.J. 931 (1988).

As appellants can point to no authoritative indication that Massachusetts would extend the protection of promissory estoppel to nonparties, we decline their tenuous invitation to blaze new trails in Massachusetts substantive law. See In re Lenard, 849 F.2d 974, 978 (5th Cir. 1988) (court exercising bankruptcy jurisdiction will not " 'adopt innovative theories of recovery or defense' when construing state law, but 'simply ... apply that law as it currently exists' ") (footnote omitted); In re Martin Grinding & Mach. Works, Inc., 793 F.2d 592, 598 n. 6 (7th Cir. 1986) (court exercising bankruptcy jurisdiction "will not adopt innovative rules of state law" without clear guidance from state court).

As their final claim of error, appellants contend that the bankruptcy court erroneously denied their Fed. R. Civ. P. 56(f) discovery motion. See Bankruptcy Rules 7056 and 9014. We review the denial of a rule 56(f) motion for abuse of discretion. Price v. General Motors Corp., 931 F.2d 162, 164 (1st Cir. 1991). Rule 56(f) permits the trial court to order, among other things, a continuance of the summary judgment proceedings to enable the nonmoving party to undertake further discovery. Hudson asserts that further opportunity for discovery might have disclosed relevant evidence relating to the contracting parties' intent in entering into the Sellback Agreement. As previously discussed, however, only the manifested intent of the contracting parties is material to the third party beneficiary analysis. See supra pp. 9-10. As appellants have not made the requisite showing that further discovery could lead to information "reasonably calculated to lead to the discovery of admissible evidence," see Fed. R. Civ. P. 26(b) (1); 56(f), the denial of their motion was not an abuse of discretion. See Fed. R. Civ. P. 26(b) (1) ("Parties may obtain discovery regarding any matter ... which is relevant to the subject matter involved in the pending action"); Assoc. for Reduction of Violence v. Hall, 734 F.2d 63, 67 (1st Cir. 1984) (district court has discretion under rule 26(b) (1) to prevent discovery on grounds of irrelevance) (dictum). See generally Hickman v. Taylor, 329 U.S. 495, 507-08, 67 S. Ct. 385, 391-92, 91 L. Ed. 451 (although discovery rules "are to be accorded a broad and liberal treatment ... limitations come into existence when the inquiry touches upon the irrelevant").

III

CONCLUSION

The present appeal concludes the fourth attempt by Project Six participants to escape the consequences of the contracting parties' decision to terminate the Sellback Agreement. Abrogation of the Sellback Agreement was part of the package settlement which enabled MMWEC to obtain significant PSNH concessions which ultimately benefited all Project Six participants. Dissatisfied and unable to prevent implementation of the settlement directly, appellants asserted derivative sellback agreement rights against PSNH as intended beneficiaries. Appellants' intended beneficiary claims must yield, as a matter of law, to the numerous indicia of the contracting parties' intent not to confer upon appellants a right to performance under the Sellback Agreement, including the plain contract language reserving to PSNH and MMWEC the exclusive right to modify the Sellback Agreement.

Affirmed; costs to appellee.