Download - Adams v. Zimmerman, 1st Cir. (1996)
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USCA1 Opinion
United States Court of Appeals
For the First Circuit
____________________
No. 94-2161
LEVI C. ADAMS, ET AL.,
Plaintiffs, Appellees,
v.
ZIMMERMAN, ET AL.,
Defendants, Appellees.
____________________
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FEDERAL DEPOSIT INSURANCE CORPORATION,
Defendant, Appellant.
____________________
No. 94-2162
LEVI C. ADAMS, ET AL.,
Plaintiffs, Appellants,
v.
ZIMMERMAN, ET AL.,
Defendants, Appellees.
____________________
FEDERAL DEPOSIT INSURANCE CORPORATION,
Defendant, Appellee.
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____________________
No. 94-2246
LEVI C. ADAMS, ET AL.,
Plaintiffs, Appellees,
v.
ZIMMERMAN, ET AL.,
Defendants, Appellees.
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____________________
FEDERAL DEPOSIT INSURANCE CORPORATION,
Defendant, Appellant.
____________________
No. 94-2247
LEVI C. ADAMS, ET AL.,
Plaintiffs, Appellants,
v.
ZIMMERMAN, ET AL.,
Defendants, Appellees.
____________________
APPEALS FROM THE UNITED STATES DISTRICT COURT
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FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Nathaniel M. Gorton, U.S. District Judge] ___________________
____________________
Before
Torruella, Chief Judge,
___________
Lynch, Circuit Judge, _____________
and Stearns,* District Judge. ______________
____________________
Vincent M. Amoroso, with whom Harry A. Pierce and Par __________________ ________________ __
____________________
*Of the District of Massachusetts, sitting by designatio
2
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Coulter, Daley & White were on brief, for plaintiffs. ______________________
J. Scott Watson, Federal Deposit Insurance Corporation,_______________
whom David S. Mortensen, Glenn D. Woods, and Tedeschi, Grasso__________________ ______________ _______________
Mortensen were on brief, for defendant Federal Deposit Insur _________
Corporation.
____________________
January 19, 1996
____________________
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LYNCH, Circuit Judge. A troubled condomini LYNCH, Circuit Judge.
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______________
development led to these appeals, which raise issues
federal banking law: whether 12 U.S.C. 1823(e) a
D'Oench, Duhme & Co. v. FDIC, 315 U.S. 447 (1942), shield t ____________________ ____
FDIC, as receiver for a failed bank, from liability for t
bank's sale of unregistered securities. We hold that t
FDIC has no such shield and is liable, but remand f
adjustment of the remedies fashioned by the district court.
These consolidated cross appeals arise out of t
development of the Hyannis Harborview Hotel. The units
the Hotel were marketed and sold by the University Bank a
Trust Company and the other defendants as "pooled inco
condominium units. Although these units were securitie
they were never registered, and, when the development of t
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Hotel faltered, the plaintiffs, purchasers of individu
units in the Hotel, sued the Bank for, inter alia, the sa
_____ ____
of unregistered securities in violation of the Massachuset
Uniform Securities Act, Mass. Gen. L. ch. 110A, 410(a)(1
The Bank was later declared insolvent and the FDIC,
receiver, was substituted for the Bank as a defendant. Aft
rejecting the FDIC's argument that 1823(e) and D'Oen ____
barred the plaintiffs' registration claims, the distri
court held the FDIC liable under section 410(a)(1) a
awarded the plaintiffs rescissionary damages, attorneys' fe
and interest.
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4
I. Background And Procedural History
In 1985, Gary Zimmerman, president of Hyann
Harborview Hotel, Inc. (HHI), approached Robert Keezer f
financial and marketing advice about converting the Hot
into condominiums. Keezer, who was then the Bank's seco
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largest stockholder, Vice Chairman of its Board of Director
and a member of the Bank's Loan Committee, agreed to do
for an interest in the project. Keezer brought Nor
Chaban, an expert in condominium marketing, into the proje
to manage the marketing and sales of the condominiums a
arranged to have a $6.8 million condominium conversion lo
placed through the Bank.
To make the Hotel units more attractive, Keeze
Chaban and Zimmerman marketed and sold the units on a "pool
income" basis. That is, the purchasers were told they wou
receive income based upon their pro rata interest in t
entire condominium project rather than on the inco
generated by their individual units. The Hotel's Declarati
of Trust and By-Laws (these and the Master Deed constitu
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the "Master Documents") provided that each unit owner:
[1] shall be liable for Common Expens
attributable to the operation of t
Condominium in the same proportion as
Beneficial Interest in this Trust bears to t
aggregate Beneficial Interest of all Un
Owners . . . ;[and]
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[2] shall be entitled to common profits, if an
attributable to the operations of the mote
type Units of the Condominium in the sa
proportion as his Beneficial Interest in t
Trust bears to the aggregate Benefici
Interest of all [unit] owners.
When several of the plaintiffs were unable to
financing to purchase their units, the Bank's Loan Committ
voted to approve $3,000,000 in "end loan" financing to the
After the plaintiffs executed their purchase and sa
agreements, which incorporated by reference the Mast
Documents, the Loan Committee (with Keezer voting) appro
end loans to several of the plaintiffs to finance t
purchases. This was the first time that the Bank's lendi
arm, University Financial Services Corporation,
considered and approved such end loans, a type of financi
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arrangement not considered standard procedure in the banki
business at the time. The plaintiffs then purchased t
units. Three of the plaintiffs, Marietta Lopes ("Lopes") a
Michael and Barbara Riley (the "Rileys"), were able to secu
financing from other lending institutions.
The units were never registered as securitie
About six months after the plaintiffs purchased the unit
they were told by HHI that, upon advice of counsel, it wou
no longer pay unit income based on a rental pool. T
unhappy plaintiffs in 1989 filed their six-count amen
complaint against HHI, Zimmerman, Chaban, Keezer and t
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6
Bank, inter alia.1 On May 31, 1991, the Comptroller of t _____ ____
Currency declared the Bank insolvent and appointed the F
as receiver. The FDIC was substituted for the Bank as
defendant.
The district court granted summary judgment for t
FDIC based on its special defenses under D'Oench a _______
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1823(e), except on the state securities registration cou
(Count V). After a bench trial, the district court issue
Memorandum of Decision, Adams v. Hyannis Harborview, Inc _____ _______________________
838 F. Supp. 676 (D. Mass. 1993), holding, among ot
things, that the plaintiffs were entitled to judgment again
the FDIC on Count V.
The court held that the provisions in the Mast
Documents made the Hotel units "investment contracts" a
thus securities within the meaning of the securities la
Id. at 686. It also held that, in light of the financi ___
arrangements made for the purchasers, Keezer was acting
the Bank's agent in the sale of the units and so his actio
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____________________
1. In addition to their claims under Mass. Gen. L. ch. 110
410(a)(1), the complaint also alleged (1) violations
12(2) of the Securities Act of 1933 (the "1933 Act"),
U.S.C. 77l(2) (Count I), (2) violations of the anti-fra
provisions of 10(b) of the Securities Exchange Act of 193
15 U.S.C. 78j(b), and Rule 10b-5 of the Securities a
Exchange Commission, 17 C.F.R. 240.10b-5 (Count II), (
common law fraud and deceit (Count III), (4) neglige
misrepresentation (Count IV), and (5) violations of the ant
fraud provisions of Mass. Gen. L. ch. 110A, 410(a)(
(Count VI). Zimmerman was eventually dismissed as
defendant.
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would be imputed to the Bank. Id. at 692. It reaffirmed i ___
rulings that D'Oench and 1823(e) provided the FIDC with_______
special defenses to Count V, id. at 691 n.14, and reject ___
the FDIC's argument that the loans to the plaintiffs made
the Bank were "bona fide" loan transactions under Mass. Ge
L. ch. 110A, 401(i)(6) and thus exempt from registrati
requirements. Id. at 694 n.16. ___
The court later ordered a rescissionary dama
award pursuant to Mass. Gen. L. ch. 110A, 410(a). T
statute provides for recovery of "the consideration paid f
the security, together with interest at six per cent per ye
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from the date of payment, costs, and reasonable attorney
fees, less the amount of any income received on the securit
upon tender of the security, or for damages if [t
plaintiff] no longer owns the security." Id. ___
Specifically, the court awarded to all plaintif
except Lopes and the Rileys $855,434, plus interest of 6% p
annum from February 11, 1994 to the date of the dama
order. The court said it "novated" the amounts t
plaintiffs owed on the first and second mortgage notes he
by the FDIC and HHI respectively. The "novation" apparent
cancelled the plaintiffs' debt on the mortgages. The cou
denied Lopes and the Rileys a rescissionary damages awa
under section 410(a)(1) because it believed it could n
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novate the loans that Lopes and the Rileys owed to thir
-8- 8
party banks. It did, however, give Lopes and the Rile
damages of $256,564 (the principal and interest payments t
had made on their mortgage loans plus the amount they sti
owed on those loans) from Keezer, Chaban and HHI on the ot
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securities law claims successfully asserted.
The court gave each plaintiff the option of eit
accepting the rescission award (and the novation) in exchan
for title to the unit or, in lieu of the rescission awar
retaining the unit free and clear. It awarded attorney
fees of $351,213 against Keezer, Chaban, HHI and the FDI
Finally, it ordered that the plaintiffs' recovery would
subject to the FDIC's "obligation to distribute the assets
[the Bank] on a pro rata basis."
The FDIC appeals the rulings on 1823(e) a
D'Oench with respect to Count V, the finding that the ba _______
loans were not "bona fide" loan transactions, the award
attorneys' fees and post-insolvency interest, and the or
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that any reconveyance be made to all defendants rather t
just to the FDIC. The FDIC does not challenge either t
district court's conclusion that the Hotel units we
securities or its conclusion that Keezer's actions we
imputable to the Bank. The plaintiffs' cross-appea
challenge the district court's method of calculating t
rescissionary damages award, its decision to limit the awa
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in accordance with the rule of ratable distribution, and i
failure to grant fee enhancements.
II. Section 1823(e) And D'Oench _______
The FDIC argues that 1823(e) and D'Oench bar t _______
claims under state securities law because the plaintif
cannot point to a written agreement regarding t
"registrability of securities." Section 1823(e) bars anyo
from asserting against the FDIC any "agreement" that is n
in writing and is not properly recorded in the records of t
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bank. 12 U.S.C. 1823(e). D'Oench generally preven _______
plaintiffs from asserting as either a claim or defen
against the FDIC oral agreements or "arrangements
Timberland Design, Inc. v. First Service Bank for Savin ________________________ _____________________________
932 F.2d 46, 48-50 (1st Cir. 1991). We do not believe t
either 1823(e) or D'Oench shields the FDIC here.2 _______
____________________
2. As modified by the Financial Institutions Refor
Recovery, and Enforcement Act (FIRREA), 1823(e) provides:
No agreement which tends to diminish or defeat t
interest of the [FDIC] in any asset acquired
it . . . shall be valid against the [FDIC] unle
such agreement [is in writing and satisfies
number of other requirements].
12 U.S.C. 1823(e). A circuit split appears to ha
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developed over the question of whether 1823(e)
preempted D'Oench. Compare FDIC v. McClanahan, 795 F.2d 51 _______ _______ ____ __________
514 n.1 (5th Cir. 1986) ("there is no reason to suppose t
Congress intended [by the passage of 1823(e)] to forbid t
rule of estoppel from being applied when the FDIC sues
receiver of a failed bank") with Murphy v. FDIC, 61 F.3d 3 ____ ______ ____
39 (D.C. Cir. 1995) (relying on O'Melveny & Myers v. FDI __________________ __
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While expansive in scope, 1823 and D'Oench on _______
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protect the FDIC from claims or defenses based upon
"agreement" or "arrangement." See 12 U.S.C. 1823(e); In___ __
NBW Commercial Paper Litigation, 826 F. Supp. 1448, 146 _________________________________
1466 (D.D.C. 1992). Although the concept of "agreement"
been broadly defined to include not only promises to perfor
but also misrepresentations or material omissions, s
Langley v. FDIC, 484 U.S. 86, 92-93 (1987), plaintiff _______ ____
claims against the FDIC are not based upon an agreement
arrangement.3
Liability for failure to register a security un
Mass. Gen. L. ch. 110A, 410(a)(1) is strict. The right
a remedy under section 410(a)(1) is independent of anythi
that was said or agreed to between the Bank and t
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plaintiffs. The act of selling the securities is w
created the liability and, as the district court found, t
Bank, through Keezer, sold the plaintiffs unregister
securities. See NBW, 826 F. Supp. at 1468 (sale___ ___
____________________
114 S. Ct. 2048 (1994) for the proposition that the FIR
preempts D'Oench); see also DiVall Insured Income Fund Lt _______ ___ ____ _____________________________
Partnership v. Boatmen's First Nat'l Bank of Kansas City,___________ _________________________________________
F.3d 1398, 1402 (8th Cir. 1995) (D'Oench and holder in_______
course doctrines preempted by FIRREA); Timberland Design, 9 _________________
F.2d at 51 (not reaching the preemption question because
had been raised for the first time on appeal). We need no
and do not, reach the question of whether D'Oench has be _______
preempted by 1823(e).
3. Indeed, after Langley, the terms "agreement" a _______
"arrangement" appear to be virtually synonymous. See i
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___
("agreement" is "scheme or arrangement").
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unregistered securities in violation of 12(1) of the 19
Act does not rest on an agreement or arrangement).4
The FDIC's attempt to shoehorn this case into t
Supreme Court's Langley decision is unfitting. Starting wi _______
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the observation in Langley that the term "agreement" inclu _______
an implicit condition such as the "truthfulness of
warranted fact," see Langley, 484 U.S. at 93, the FDIC argu ___ _______
that the plaintiffs' claims depend on the Bank's "impli
warranty" that the securities it was selling were legal. B
to the extent that such a warranty can even be characteriz
as an agreement or arrangement, the plaintiffs' claims do n
depend upon it. The claims come from an independent le
obligation arising from the act itself -- the sale
unregistered securities -- and not from any warranty that t
action was legal. See NBW, 826 F. Supp. at 1468. ___ ___
The FDIC says that D'Oench and 1823(e) a _______
designed to shield the FDIC from hidden liabilities and t
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the FDIC could not have known from the Bank's records t
the Bank had sold securities to the plaintiffs. But t
does not appear to be the case. Although the Ban
____________________
4. This case is not like typical securities fraud cases
which plaintiffs claim that they were induced to purchase
security based upon some material misrepresentation
omission. In such cases, a plaintiff's claim depends up
something the bank said or did that misled the plaintif
See, e.g., Dendinger v. First Nat'l Corp., 16 F.3d 99 (5 ___ ____ _________ __________________
Cir. 1994); Kilpatrick v. Riddle, 907 F.2d 1523 (5th Ci __________ ______
1990), cert. denied, 498 U.S. 1083 (1991)._____ ______
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documents did not specifically use the term "security," t
pooled income arrangement is disclosed in the documents. T
HHI Declaration of Trust and By-Laws specifically provi
that the Hotel would be operated on a pooled income basi
The mortgages were reflected in the Bank's records. The Lo
Proposal for the conversion loan states that the condomini
would be operated on a pooled income basis. The plaintiff
purchase and sale agreements incorporate by reference t
Declaration of Trust and By-laws; and the Loan Extensi
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documents for the plaintiffs referenced the condominium uni
as collateral. A review of the documents pertinent to t
plaintiffs' promissory notes would have revealed the fac
showing that the Hotel units were pooled income units.
Perhaps recognizing this problem with its gener
policy argument, the FDIC presses a slightly refined varian
It argues that 1823(e) and D'Oench apply because_______
specific writing appears on the Bank's records signed by bo
a plaintiff and the Bank that "memorializes any obligation
the Bank with respect to a securities transaction." T
argument, which is premised on the notion that there must
a written agreement that specifically states in terms t
the condominium units are securities, rests on the incorre
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assumption that the bank examiners must be able to determi
the legal import of the facts reflected in the ban
records. This assumption ignores that "[t]he real iss
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. . . is not whether the bank examiners could tell whet
the bank's actions were illegal (or indeed whether t
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examiners knew what the law was), but rather, whether t
factual predicate for the application of the law
established on the bank's books." NBW, 825 F. Supp. at 14 ___
n.28.5 That the plaintiffs' claims rest on collater
documents referenced in the books of the Bank does n
transform their section 410(a)(1) claims into ones based up
an agreement or arrangement. Id.6 ___
____________________
5. This case is quite similar to NBW, in which the cou ___
held that the FDIC could be liable for a bank's sale
unregistered securities. The FDIC's attempts to distingui
NBW on its facts are unpersuasive. First, the FDIC argu ___
that the bank in NBW was only a seller of securities and t ___ ____
Bank here was both a seller and a lender. But all t ____
really means is that the NBW plaintiffs paid for the securi ___
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with cash while the plaintiffs here paid for the securi
with a promissory note and mortgage. Second, the FDIC argu
that in NBW there was a written agreement which in ter ___
provided for a securities purchase. But that is n
necessary, and the Bank's records reflect the sale of t
pooled income units. Third, the FDIC claims that unlike
NBW where the bank was self-dealing, the Bank here was simp ___
acting as a third party lender in this transaction. T
claim is just not supported by the record. Moreover, none
these distinctions bears on the central insight of NBW t ___
the plaintiffs' claims against a bank for the sale
unregistered securities do not arise from an agreement
arrangement.
6. It is fair for the FDIC to make the very general poi
that the plaintiffs' claims depend upon an agreement becau
they depend upon a "sale" of a security and a sale is
agreement. However, it is undisputed that the sale of the
units to the plaintiffs is clearly reflected in the Ban
records sufficient to satisfy both 1823(e) and D'Oenc _____
The FDIC suggests however that there is an absence of
writing, sufficient to satisfy 1823(e) and D'Oenc _____
specifically mentioning in terms that the Bank was a "selle
of the units. As with the FDIC's argument that the documen
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The only policy consideration underlying D'Oen ____
that the FDIC argues is relevant here is the concern that t
FDIC be able to value the assets of a bank by reviewin
bank's records either for purposes of liquidation or f
purposes of a purchase and assumption transaction. S
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Langley, 484 U.S. at 91-92. Such a valuation must be do _______
"'with great speed, usually overnight, in order to preser
the going concern value of the failed bank and avoid
interruption in banking services.'" Langley, 484 U.S. at_______
(quoting Gunter v. Hutcheson, 674 F.2d 862, 865 (6th Cir. ______ _________
cert. denied, 459 U.S. 1059 (1982)). Where the Bank recor _____ ______
reflect adequately the sale of the Hotel units as pool
income units, these concerns appear to be satisfied.7
____________________
must have stated in terms that the units were securitie
this argument assumes that the legal significance of t
documents must be apparent to the bank examiners in order
overcome 1823(e) and D'Oench. Just as the pooled inco
_______
language in the Master Documents made the units securities
operation of securities law, the loan documents reflected
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the record, as the district court concluded and the F
concedes, made Keezer's sale of the units imputable to t
Bank by operation of principles of agency incorporated in
securities law. That the legal significance of these lo
transactions was not explicitly spelled out does not bar t
plaintiffs' claims. See NBW, 826 F. Supp. at 1469 n.29. ___ ___
7. Plaintiffs have also argued that notwithstanding whet
their claim depends upon an agreement, their claims wi
affect no "asset" for purposes of 1823(e). They point o
that where notes are invalidated by acts or omissio
independent of an alleged secret agreement, the notes are n
an asset protected by 1823(e). See FDIC v. Bracero___ ____ ______
Rivera, Inc., 895 F.2d 824, 830 (1st Cir. 1990). They ar ____________
that because the sales of the condominium units were voi
see Kneeland v. Emerton, 183 N.E. 155, 159 (Mass. 193 ___ ________ _______
(under predecessor to Massachusetts Uniform Securities Ac
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III. Sales Of Securities Or Bona Fide Loans?
The FDIC also says that there were no sales
securities, arguing that these were bona fide lo
transactions instead. We disagree. The pertinent sta
securities statute provides that the terms "sale," "sell
"offer," or "offer to sell" do not include any "bona fi
pledge or loan." Mass. Gen. L. ch. 110A, 401(i)(6).
The record amply supports the district court
conclusion that the loans were not made in the ordina
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course of business and were not bona fide. The Bank a
Keezer operated together in the marketing and financing
these condominium units to the plaintiffs. When it beca
apparent that the project might fail because the purchase
were having trouble getting financing, the Bank departed fr
standard banking practice and offered end loans to t
plaintiffs (except Lopes and the Rileys). When it came
granting the end loans to the plaintiffs, the Bank's agen
____________________
sale of stock was a void transaction where notice
intention to sell shares had not been filed with t
Department of Public Utilities), the promissory notes bas
upon the units were also void, and that, accordingly,
asset passed to the FDIC when it took over the Bank. T
FDIC counters that notwithstanding Kneeland's use of the te ________
"void," the case actually employed the concept
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"voidability," see id. (stating that the transaction was vo ___ ___
at the buyer's instance), and that an asset does pass to t
FDIC if the transaction is voidable. See Kilpatrick___ __________
Riddle, 907 F.2d 1523, 1528 (5th Cir. 1990). Because we ho ______
that the plaintiffs' claims in this case do not depend up
an agreement or arrangement, we need not resolve t
question.
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Keezer, knew or should have known that the sales were n
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registered and therefore could not be completed in complian
with the securities laws. He nevertheless participated
the vote to approve the end loans. That the substitution
the plaintiffs' good debt for HHI's bad debt may have been
the interest of the Bank and its shareholders does n
establish that the Bank was involved in bona fide lo
transactions. The substitution was based on the transfer
an unregistered security to the plaintiffs. Where the loa
were entered into in the course of the Bank's effort
finance and market, through its agent, securities that t
Bank knew or should have known could not be sold witho
registration, the loans were not bona fide.
IV. Remedy
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Each side complains about the district court
remedial order. Plaintiffs argue that the district cou
erroneously ordered that any recovery against the FDIC
subject to the FDIC's responsibility to distribute the asse
of the failed bank in a ratable manner. They also argue t
the district court's method of setting the rescissiona
damages was infirm, that the award improperly excluded Lop
and the Rileys, and that the court should have awarded
attorneys' fee enhancement. For its part, the FDIC clai
that the district court erred in awarding post-insolven
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interest and attorneys' fees and in requiring the plaintif
accepting the rescissionary damages to reconvey their uni
to all of the defendants rather than only to the FDIC. T
district court's award is reviewed for an abuse of discreti
unless it rests on an erroneous legal determination. S
Downriver Community Federal Credit Union v. Penn Square Ba _________________________________________ _____________
through FDIC, 879 F.2d 754, 758 (10th Cir. 1989), cer _____________ __
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denied, 493 U.S. 1070 (1990). ______
A. Ratable Distribution ____________________
The FDIC, as receiver, is authorized to distribu
the assets of a failed bank to all creditors on a pro ra
basis pursuant to the National Bank Act at 12 U.S.C.
and 194, and the FIRREA at 12 U.S.C. 1821(i)(2).8 S
also United States ex rel. White v. Knox, 111 U.S. 784, 7 ____ ____________________________ ____
____________________
8. Section 91 prohibits a bank facing insolvency from maki
payments that prefer some creditors over others. 12 U.S.
91. Section 194 requires a ratable distribution of asse
among all general creditors entitled to a share in t
receivership estate. 12 U.S.C. 194 (providing that t
FDIC "shall make a ratable dividend . . . on all such clai
as may have been proved to [its] satisfaction or adjudicat
in a court of competent jurisdiction"). Section 1821(i)(
limits the FDIC's liability as receiver to the amount
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claimant would have received in a straight liquidation of t
failed bank. 12 U.S.C. 1821(i)(2) ("The maximum liabili
of the [FDIC] . . . to any person having a claim . . . sha
equal the amount such claimant would have received if t
[FDIC] had liquidated the assets and liabilities of su
institution . . . ."). Section 1821(i)(2) does not,
itself, resolve the issue of whether a plaintiff is entitl
to a preference because the statute does not "alter[]
define[] the priorities [that] define liquidation value
Branch v. FDIC, 825 F. Supp. 384, 417 & n.35 (D. Mass. 199 ______ ____
(internal quotation omitted).
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(1884) ("Dividends are to be paid to all creditors ratabl
that is to say, proportionally. To be proportionate t
must be made by some uniform rule. . . . All creditors a
to be treated alike."). While the ratable distribution ru
is not absolute, the statutory framework is "distinct
unfriendly to the recognition of special interests
preferred claims." Downriver, 879 F.2d at 762 (intern _________
quotation omitted).
A plaintiff seeking an exception from the pro ra
rule bears a heavy burden of proof to show that a preferen
is warranted. Id.; see also Branch 825 F. Supp. at 416.___ ___ ____ ______
preference might be warranted where a plaintiff is a secur
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creditor and is seeking to enforce a lien against t
security, see Ticonic Nat'l Bank v. Sprague, 303 U.S. 40 ___ __________________ _______
413 (1938), or where the plaintiff, although a gener
unsecured creditor, can show an entitlement to a constructi
trust. See Downriver, 879 F.2d at 762. Because t ___ _________
plaintiffs can show neither, their awards are subject to p
rata distribution.
None of the plaintiffs has a secured claim, a
they argue to no avail that they have claims entitling t
to a constructive trust. The plaintiffs must have shown, a
did not, that the Bank's fraudulent conduct caused
particular harm that is not shared by substantially all ot
creditors, and that granting the relief would not disrupt t
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-19- 19
orderly administration of the estate. Id. The distri ___
court found, however, that the defendants committed no fra
in this case, and fraud (or violation of a fiduciary duty)
generally a prerequisite to the formation of a constructi
trust.9 Moreover, the plaintiffs have not shown that
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preference would not interfere with the order
administration of the estate. The district court proper
held that the plaintiffs' awards were subject to the pro ra
distribution rule.
B. Rescissionary Damages Award ___________________________
Rescissionary damages against the FDIC and t
other defendants, jointly and severally, were awarded to a
plaintiffs except Lopes and the Rileys. The district cou
also "novated" the remaining debt of all plaintiffs (exce
Lopes and the Rileys) on the first and second mortgages he
by the FDIC and HHI. The plaintiffs quarrel with this aspe
of the district court's award in two respects: that t
district court used an incorrect method of calculati
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____________________
9. The only fraudulent behavior the plaintiffs attribute
the Bank stems from the Bank's opposition to the plaintiff
Motion for Order Segregating Assets filed a few weeks befo
the Bank was declared insolvent. In opposing the motion, t
Bank represented to the court that any harm the plaintif
feared from an FDIC takeover was mere speculation. The Ba
failed to inform the court that it was in negotiations wi
the FDIC and a takeover by the FDIC was imminent. Witho
condoning this regrettable lapse by the Bank, it does n
help the plaintiffs. The plaintiffs have not demonstrat
that they would have been entitled to a segregation of asse
had the Bank properly informed the court of its financi
condition as it should have.
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damages, and that the district court improperly exclu
Lopes and the Rileys from the rescissionary damages awa
that ran against the FDIC.
1. Method of calculation. _____________________
The district court ordered an award of rescissio
excluding interest, of $654,949. The district court start
with the total amount of money at issue -- the principa
interest and other expenses paid by the plaintiffs min
income received and the unpaid debt on the first and seco
mortgages held by the FDIC, for a total of $2,072,205. T
court then subtracted the unpaid mortgage debt owed to t
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FDIC and HHI, a total of $1,271,100, and the principal a
interest payments made by Lopes and the Rileys, a total
$146,156, to reach $654,949. The court then ordered
"novation of the notes owed by the plaintiffs to defendant
HHI and the FDIC," although the court apparently intended
outright cancellation of the notes.
Plaintiffs argue that the district court shou
have awarded them the entire amount of consideration paid f
the units, including the unpaid portions of the loan
subject to a setoff by the FDIC and HHI for the unpa
portions of the loans. They also argue that the distri
court should also have allowed the plaintiffs to keep t
units as a setoff for any damages owed to the plaintiffs fr
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-21- 21
the FDIC that would be left unpaid because of the insolven
of the Bank.
As a practical matter, there is little differen
between what the district court ordered (return of principa
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interest, fees and expenses minus income and "novation"
the loans) and what the plaintiffs are requesting (enti
cost of loans plus amount paid on the units minus inco
leaving plaintiffs' debt to the FDIC and HHI intact). As t
plaintiffs recognize, the district court's award "with
solvent defendant, would fully fund rescission and return
Plaintiffs their full damages in exchange for title to the
units." The plaintiffs argue, however, that their method
calculation makes a difference because the Bank is insolve
and will not be able to pay the damages judgment in ful
Plaintiffs say their method allows them to keep the units
a setoff and thus make up any shortfall between the dama
owed and the pro rata share of the Bank's assets they wi
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receive. We disagree.
A setoff is often justified where a plaintiff o
a debt to an insolvent party and will be forced to pay o
that debt without being allowed to recover a debt t
insolvent party may owe to the plaintiff. See In re Sau ___ _________
General Hosp., Inc., 698 F.2d 42, 45 (1st Cir. 1983). It____________________
typically employed where a depositor, who also owes money
a bank, seeks to offset the amount owed by the amou
-22-
22
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deposited. It is employed where the parties have reciproc
or mutual obligations to one another.
The plaintiffs have tried to characterize t
obligations between the parties as being mutual a
appropriate for a setoff of the units. Under the plaintiff
argument, the offsetting obligations would exist were t
court (1) to create a damages award in the plaintiffs' fa
for the entire amount of the loans and the amount plaintif
have paid on the units (minus income) and (2) then award t
FDIC and HHI the amounts the plaintiffs owe on the promisso
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notes. With such offsetting obligations, the plaintif
argue, they should be entitled to set off the units, i.e
keep them, in the face of the Bank's insolvency. See FDIC___ ____
Mademoiselle of California, 379 F.2d 660, 664 (9th Cir. 196 __________________________
("It is well settled that the insolvency of a party again
whom a set-off is claimed constitutes a sufficient ground f
the allowance of a set-off not otherwise available.
(internal quotations omitted)).
This argument, however, is incongruous with t
plaintiffs' theory of recovery in this case. Plaintiffs he
sought rescission, a form of restitution. Under this theor
the restitution by the defendant of the ill-gotten gai
cannot be enforced unless the "plaintiff[s] return[] in so
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way what [they] ha[ve] received as a part performance by t
defendant." Arthur L. Corbin, Corbin on Contracts 1114,___________________
-23- 23
608 (1964); see also Restatement of Restitution 65 (193 ___ ____
(the general rule is that the right of a person
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restitution for a benefit conferred upon another in
transaction is dependent upon his return of, or offer
return, anything the person received as a part of t
transaction). Thus, under the applicable statute, rescissi
is allowed upon "tender of the security" by the plaintif
See Mass. Gen. L. ch. 110A, 410(a); see also 15 U.S.C.___ ___ ____
77l.
Since tender of the unit is a condition f
triggering the obligation of the Bank to repay the amou
paid for the units, the plaintiffs cannot also use the uni
as setoffs. The Bank owes the plaintiffs nothing until t
plaintiffs relinquish their rights to the units. And on
the plaintiffs no longer have rights to the units, t
plaintiffs have no basis to use the units as setoffs.10
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____________________
10. Even assuming that the plaintiffs might, in theory,
entitled to set off of the units, that does not automatical
entitle them to do so. A setoff may be denied in order to
"equity, prevent injustice, and achieve the goals
procedural fairness." In re Lakeside Hospital, Inc., 1 _______________________________
B.R. 887, 893 (N.D. Ill. 1993). In equitable terms it cou
be viewed that plaintiffs have received windfalls from t
remedial order. First, a portion of the consideration pa
for the security awarded to the plaintiffs was the intere
component of the mortgage payments. Assuming that t
interest on the Bank's loans to the plaintiffs was at mar
rate, the effect of the award is to give the plaintiffs
market rate of interest on the price of the units as well
the statutory interest award of 6%. This issue was n
presented by the parties and we do not reach the issue
whether 410(a) allows for the calculation
"consideration" in such a way. Second, the plaintiffs we
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Although the general method employed by t
district court in reaching the rescissionary damages awa
was appropriate, one aspect of the order needs to
modified. The district court ordered a "novation" of t
amounts the plaintiffs owed on the first and second mortga
notes to the FDIC and HHI. A "novation" is typically
"substituted contract that includes as a party one who
neither the obligor nor the obligee of the original duty
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Restatement (Second) of Contracts 280 (1979). The court
order, however, does not provide for a substitution
parties and, given the cases cited by the district court
its order, Limoli v. Accettullo, 265 N.E.2d 92 (Mass. 197 ______ __________
and Levy v. Bendetson, 379 N.E.2d 1121 (Mass. App. Ct. 1978
____ _________
in which the courts cancelled the notes, it does not appe
that a substitution was intended. Because an outri
cancellation of the notes may render unclear the relati
rights of the parties in the unit, we vacate the portion
the order which "novates" the notes along with granti
rescissionary damages and remand with directions that t
district court order a novation whereby the "judgmen
defendants (FDIC, Keezer, Chaban, and HHI) are substituted
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obligors on the notes secured by the mortgages and t
____________________
given the option of keeping the units free and clea
Because this allows the plaintiffs to keep what they bou
and effectively have a return of a significant portion of t ___
consideration paid for the unit, it might be viewed as
potential over-recovery.
-25- 25
plaintiffs are discharged of any liability on the notes.
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units eventually tendered to the judgment defendants would
subject to the mortgages.11
2. Lopes and the Rileys. ____________________
Lopes and the Rileys were denied any relief again
the FDIC because they had given mortgages and promisso
notes to disinterested third party banks and the cou
believed that it could not "novate" those debts. Althou
the district court correctly concluded that it should n
interfere with the debts owed to the third party banks,
improperly denied Lopes and the Rileys rescissionary dama
against the FDIC. The only
difference between Lopes and the Rileys and the ot
plaintiffs is that Lopes and the Rileys paid substantial
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more cash to the defendants when purchasing the units.
was not the entire price because both Lopes and the Rile
appear to have given second mortgages to HHI. Lopes and t
Rileys were still purchasers of unregistered securitie
They should therefore be able to recover from the FDIC a
____________________
11. This approach keeps the respective rights in the uni
following the award relatively clear. After the transfe
the judgment defendants would own as tenants in common t
units subject to the first and second mortgages on t
properties. If the defendants were to default on the not
to the Bank, then the FDIC could foreclose on the fir
mortgage and use the proceeds of any sale to satisfy t
debt. Anything left over would be used to satisfy HHI
second mortgage debt. Anything remaining after that would
distributed to the defendants, and presumably could be sort
out in an action among the defendants.
-26- 26
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the other defendants the consideration paid for the unit
See Mass. Gen. L. ch. 110A, 410(a). Unfortunately, t ___
record does not clearly reveal the consideration Lopes a
the Rileys paid for the units. On remand the district cou
should hold a hearing to determine the consideration Lop
and the Rileys paid for the units. As with the ot
plaintiffs, Lopes' and the Rileys' entire claims will
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subject to the ratable distribution rule.
Lopes' and the Rileys' claims do raise addition
wrinkles for consideration on remand. The novation given
the plaintiffs who borrowed from the Bank was an implic
setoff of the amount of the mortgage debt. Lopes and t
Rileys are not entitled to such an implicit setoff becaus
with respect to the loans to the third-party banks, the
would be no mutuality of obligation. Absent mutu
obligations, a setoff, or its equivalent, is inappropriat
Cf. In re Lakeside Community Hospital, 151 B.R. at 8 ___ ____________________________________
(setoff in bankruptcy). Unlike the other plaintiffs, Lop
and the Rileys must bear the full cost of the Ban
insolvency.
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If Lopes and the Rileys convey their units to t
defendants, they will remain liable on their promisso
notes. It may be the case, however, that the third par
banks will refuse to allow Lopes and the Rileys to recon
their units to the defendants. If that occurs, the distri
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court may want to make clear that their remedy is subject
any terms provided in their loan agreements with the thi
party banks. The district court may also consider treati
such a situation like that in which a purchaser cannot ten
the security because she no longer owns it. In that cas
damages are awarded. See Mass. Gen. L. ch. 110A, 410(a). ___
C. Interest ________
1. Post-insolvency interest. ________________________
Section 410(a) provides for an award of 6% intere
on the consideration paid for the security from the date
payment of that consideration. The district court awar
$200,485 statutory interest to the plaintiffs against t
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FDIC, Keezer, Chaban and HHI. That amount represen
interest from the date the plaintiffs made each of the
respective mortgage payments until February 11, 1994, t
date the plaintiffs submitted their damages motion. The F
contends that the interest award against it incorrect
includes interest accruing following the Bank's insolvenc
which occurred on May 31, 1991. According to the FDIC, t
ratable distribution rule precludes such post-insolven
interest.12 We agree.
____________________
12. Because Keezer, Chaban, and HHI can claim no benef
from the ratable distribution rule under the National Ba
Act and the FIRREA, the following discussions of interest a
attorneys' fees apply only to the extent they were awar
against the FDIC.
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-28- 28
As unsecured creditors, the plaintiffs sha
ratably with all other "unsecured creditors, and their clai
bear interest to the same date, that of insolvency
Ticonic, 303 U.S. at 412.13 There are exceptions to t _______
rule, but where, as here, the interest is part of the cla
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itself, interest accruing after the insolvency should not
awarded. See United States ex rel. White v. Knox, 111 U. ___ ___________________________ ____
784, 786 (1884); First Empire Bank-New York v. FDIC, 572 F. __________________________ ____
1361, 1372 (9th Cir.)("First Empire I"), cert. denied, 4 _______________ _____ ______
U.S. 919 (1978).14
____________________
13. This rule bears similarity to the rule applicable in t
bankruptcy context that post-petition interest is n
available against an insolvent debtor. See Debentureholde ___ _____________
Protective Comm. of Continental Inv. Corp. v. Continent ____________________________________________ ________
Inv. Corp., 679 F.2d 264, 268 (1st Cir.), cert. denied, 4 __________ _____ ______
U.S. 894 (1982). This is not surprising. Courts have loo
to bankruptcy law to "decipher the meaning of the ratab
dividend requirement of section 194." Texas Americ ____________
Bankshares, Inc. v. Clarke, 954 F.2d 329, 338 n.10 (5th Ci _________________ ______
1992).
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14. Some courts have suggested that if a receiver
unreasonable or vexatious in resisting a claim, or is
fault in administering the trust, interest may be allowed f
the delay. See Fash v. First Nat'l Bank of Alva, Okl.,___ ____ _______________________________
F.2d 110, 112 (10th Cir. 1937) (citing cases). T
plaintiffs have not shown that these exceptions apply. T
case upon which the plaintiffs rely for the proposition t
post-insolvency interest is available here, First Empi
_________
Bank-New York v. FDIC, 634 F.2d 1222 (9th Cir. 1980) ("Fir ______________ ____ __
Empire II"), cert. denied, 452 U.S. 906 (1981),__________ _____ ______
inapposite. That case drew a distinction between pos
insolvency interest as part of a claim against a bank (whi
would not be allowed) and interest accruing from
erroneously denied claim after the ratable amount was paid
other creditors (which it did allow). Id. at 1224. T ___
plaintiffs, however, seek to include the interest as part
the original claims against the Bank. They argue "t
general rule regarding post-insolvency interest does n
-29- 29
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The FDIC does not challenge the award of pr
insolvency interest, but says the district court did n
distinguish between the portion of the award representi
pre-insolvency interest and the portion representing pos
insolvency interest. We prefer to allow the district cou
to determine the appropriate amount on remand rather t
attempt to do it here.
2. Lopes and the Rileys. ____________________
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Lopes and the Rileys were erroneously treated
the interest calculation and that award should be adjuste
The $200,485 interest award to the other plaintif
apparently includes $20,679.93 of interest on the mortga
payments Lopes made for the condominium unit and $28,240.
of interest on the payments the Rileys made. Those intere
amounts were calculated according to the same method employ
for the plaintiffs who borrowed from the Bank: the intere
was calculated from the date each loan installment payme
was made. This method was inappropriate for Lopes and t
Rileys since, with respect to the Bank and the ot
defendants, Lopes and the Rileys parted with a lump sum
the time of the purchase. Interest for Lopes and the Rile
ought to have started accruing on the entire purchase pri
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____________________
control where the interest itself is part of the underlyi
claim, as it is here." That type of post-insolvency intere
appears to be precisely the type of interest that Fir __
Empire II said should not be allowed. Id.
_________ ___
-30- 30
on the date the cash was transferred to the defendants, n
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on the date the payments were made to the third party ban
Because we cannot determine that amount on the prese
record, on remand the district court should calculate t
appropriate interest to be awarded to Lopes and t
Rileys.15
D. Attorneys' Fees _______________
1. The award. _________
The FDIC argues that the award of attorneys' fe
under section 410(a) violates the ratable distribution ru
because the claims for attorneys' fees were not "provabl
within the meaning of the National Bank Act at 12 U.S.C.
194 and case law construing that provision. See Interfir ___ _______
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Bank-Abilene, N.A. v. FDIC, 777 F.2d 1092, 1097 (5th Ci __________________ ____
1985); First Empire I, 572 F.2d at 1372. We disagree. ______________
A claim is provable if at the time of t
insolvency there is a present cause of action. First Empi _________
____________________
15. It is also not entirely clear whether the district cou
intended to include the interest awards to Lopes and t
Rileys in the order for rescissionary damages. The distri
court denied Lopes and the Rileys rescissionary damages
the 410(a)(1) claim. The court, however, added the fu
$200,485 to the rescissionary damages award of $654,949
give a total award of rescission of $855,434. Although t
district court could have meant for Lopes and the Rileys
benefit just from the interest component of that award, it
unclear whether that was so intended, particularly since t
interest is treated as part and parcel of the rescissiona
damages award based on 410(a)(1) and the district cou
appeared to deny Lopes and the Rileys an award un
410(a)(1). The district court should clarify this porti
of the award on remand.
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-31- 31
I, 572 F.2d at 1368 (citing Pennsylvania Steel Co. v._ _______________________
York City Ry. Co., 198 F. 721, 738 (2d Cir. 1912) ("Clai
__________________
which at the commencement of [equitable receivershi
proceedings furnish a present cause of action [a
provable].")). In this case, the plaintiffs were active
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pursuing their claims against the Bank at the time the Ba
became insolvent. At that time, there were claims not on
for rescission but also for attorneys' fees. Accordingl
the claims for attorneys' fees were provable.
Relying on Interfirst, 777 F.2d at 1097, the F
__________
argues that attorneys' fees are not provable here becau
there were no contractual provisions for attorneys' fe
between the plaintiffs and the Bank. According to the FDI
the absence of contractual contingency fee provisions f
attorneys' fees before the insolvency shows that no clai
for attorneys' fees existed before the insolvency. We reje
the FDIC's argument that the claims for attorneys' fees
not exist prior to the insolvency because the contingency f
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agreement between the plaintiffs and their attorneys was n
executed until after the insolvency. The FDIC is aware t
the plaintiffs had an obligation to pay their attorneys, a
in fact did pay their attorneys substantial fees, during t
period prior to the insolvency. Plaintiffs' claims f
-32- 32
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attorneys' fees certainly did exist by statute, and did
well before the insolvency.16
The FDIC also argues that the claims are n
provable because (1) there was no collateral fund to pay t
fees (only the general assets of the estate to be shared
all unsecured creditors), and (2) the fees were not fixed a
certain at the time the suit was filed against the FDIC. B
the notion of provability is not the same as the rule
ratable distribution. "Though related concepts, whether
claim is provable under section 194, and whether
distribution is 'ratable' represent two entirely differe
inquiries." See Citizens State Bank of Lometa v. FDIC, 9
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___ _____________________________ ____
F.2d 408, 413 (5th Cir. 1991).
The existence of a collateral fund, while perha
relevant to ratable distribution, is not relevant
determining provability; and the FDIC's argument that t
attorneys' fees must have been absolute, fixed, due and owi
for purposes of ratable distribution to be "provable" is n
correct. Id. (provability of claims is not equated to t ___
absolute, fixed, due-and-owing language which applies to t
concept of a "ratable distribution"). Even if the claims f
____________________
16. To the extent Interfirst suggests that statutory clai
__________
for attorneys' fees should be treated differently than clai
based upon contract, see Interfirst, 777 F.2d at 1097 n
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___ __________
(stating that the state law providing for attorneys' fe
does not create a claim for purposes of applying the Fir __
Empire I test), we disagree.
________
-33- 33
attorneys' fees here were "contingent," which they are not,
claim is provable if its "worth or amount can be determin
by recognized methods of computation." First Empire I, 5 _______________
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F.2d at 1369. The lodestar approach to calculation
attorneys' fees is a recognized method of computation.
Nevertheless the attorneys' fees award requir
modification. The rule of ratable distribution "requir
that dividends be declared proportionately upon the amount
claims as they stand on the date of insolvency." Citize _____
State Bank, 946 F.2d at 415. The amount of the claim t __________
has accrued at the time of insolvency is the basis f
apportionment of dividends. See Kennedy v. Bosto ___ _______ ____
Continental Nat'l Bank, 84 F.2d 592, 597 (1st Cir. 193 _______________________
("The amount of the claim may be later established, but, w
established, it must be the amount due and owing at the ti
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of the declaration of insolvency, as of which time it
entitled, with the claims of the other creditors, to
ratable distribution of the assets of the bank."); see al ___ _
White, 111 U.S. at 787 ("It was clearly right . . ._____
ascertain from the judgment how much was due on this claim
the date of the insolvency, and make the distributi
accordingly."). The availability of attorneys' fees for
unsecured creditor depends upon whether the fees accrued pr
insolvency or whether they accrued post-insolvency. Tho
incurred prior to the insolvency are recoverable while tho
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incurred afterwards are not. Cf. Fash v. First Nat'l Bank___ ____ ________________
Alva Okl., 89 F.2d 110, 112 (10th Cir. 1937) (post-insolven _________
attorneys' fees not available).
We believe this situation is not only analogous
requests for interest and other costs of collection, s
Interfirst, 777 F.2d at 1097 (relying on Ticonic to de __________ _______
post-insolvency attorneys' fees); Fash, 89 F.2d at 1 ____
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(treating interest and attorneys' fees under the sa
principle); cf. also In re Continental Airlines Corp., 1 ___ ____ __________________________________
B.R. 276, 279-80 (Bankr. S.D. Tex. 1989) (drawing analo
between attorneys' fees and post-petition interest), but al
is analogous to requests for attorneys' fees in t
bankruptcy context. Pre-petition attorneys' fees
unsecured creditors against an insolvent debtor are general
allowed under the bankruptcy code to the extent t
applicable state law so provides, and post-petiti
attorneys' fees are generally not allowed. See, e.g., In___ ____ __
Southeast Banking Corp., 188 B.R. 452, 462-64 (Bankr. S. ________________________
Fla. 1995) (denying under the bankruptcy code unsecur
creditors' attorneys' fees incurred post-petition b
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allowing attorneys' fees incurred pre-petition); but cf.___ ___
re United Merchants and Mfrs., Inc., 674 F.2d 134, 137 ( _____________________________________
Cir. 1982) (unsecured creditor can recover collection cos
including counsel fees where such costs were a specifical
bargained-for term of a loan contract). Plaintiffs a
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entitled to attorneys' fees that had accrued as of the da
of the insolvency but are not entitled to attorneys' fe
following the insolvency.17 Because we are unable
determine the amount of attorneys' fees accruing prior to t
insolvency, we leave that inquiry to the district court
remand.
2. Fee enhancements. ________________
The plaintiffs argue that they were entitled
either a contingency fee enhancement or a results enhanceme
to the attorneys' fee award. The district court's fee awa
is reviewed for an abuse of discretion, see Brewster___ ________
Dukakis, 3 F.3d 488, 492 (1st Cir. 1993), and there was non _______
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As the plaintiffs concede, the argument for
contingency enhancement in a statutory fee-shifting conte
is a difficult one, even if the enhancement requested here
based on state rather than federal law, in the aftermath
City of Burlington v. Dague, 112 S. Ct. 2638, 2643 (199 __________________ _____
(generally disapproving of contingency enhancements un
federal fee-shifting statutes).18 The Massachusetts cour
have stated that where the federal and state law causes
____________________
17. The plaintiffs' motion, filed after oral argument, f
attorneys' fees incurred on appeal is therefore denied.
18. This is not a common fund situation. Cf. In___ ___
Washington Public Power Supply System Securities Litigatio __________________________________________________________
19 F.3d 1291, 1299-1301 (9th Cir. 1993) (stating t
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rationale of Dague did not apply in common fund cases a _____
that district court had the discretion to allow contingen
enhancements in common fund case).
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action are similar, the attorneys' fees "in both fora shoul
for the most part, be calculated in a similar manner
Fontaine v. Ebtec Corp., 613 N.E.2d 881, 891 (Mass. 1993 ________ ___________
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The state law counterpart should not be construed to all
such an enhancement absent direction from the state court
Plaintiffs have cited no state cases allowing a contingen
enhancement for a successful securities law action based
the fee-shifting provision of section 410(a)(1) and
decline to predict the creation of such a state law ru
here.
A results enhancement is also inappropriate. Su
an enhancement is a "tiny" exception to the lodestar rul
See Lipsett v. Blanco, 975 F.2d 934, 942 (1st Cir. 1992 ___ _______ ______
The rates provided to the attorneys in this case "adequate
reflected the lawyers' superior skills and the superb resul
obtained." Id. ___
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E. Reconveyance to Defendants __________________________
In its damages order the district court provi
that plaintiffs accepting the rescission award reconvey t
units to all the defendants. The FDIC contends that t
district court abused its discretion in ordering the uni
deeded to all the defendants rather than just to the FDI
The plaintiffs, who presumably are indifferent as to
among the defendants gets the units, have not argu
otherwise. Where the debts owed on the units have be
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novated in the manner prescribed here, conveyance of t
units solely to the Bank might prejudice the rights of t
other defendants. The district court did not abuse i
discretion on this matter.
V. Conclusion
For the foregoing reasons, we affirm the distri
______
court's judgment of liability but vacate and remand the or ______ ______
on damages, novation, attorneys' fees and interest,
discussed above, for further proceedings consistent with t
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opinion. It is so ordered. ________________
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