Adams v. Zimmerman, 1st Cir. (1996)

7/26/2019 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


Plaintiffs, Appellants,

v.

ZIMMERMAN, ET AL.,


____________________


Defendant, Appellee.


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____________________

No. 94-2246


Plaintiffs, Appellees,

v.

ZIMMERMAN, ET AL.,



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____________________


Defendant, Appellant.

____________________

No. 94-2247


Plaintiffs, Appellants,

v.

ZIMMERMAN, ET AL.,


____________________

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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3

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.

-4-


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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]

-5- 5


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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

-6-


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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.

-7- 7


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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

-9- 9


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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 __________________ __

-10- 10

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").

-11- 11

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)._____ ______

-12- 12


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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

-13- 13

. . . 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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-14- 14

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

-15- 15


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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.

-16- 16

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

-17- 17


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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).

-18- 18


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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.

-20- 20


53/99

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


54/99

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


55/99

-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


56/99

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


57/99

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


58/99

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


59/99

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


60/99

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


61/99

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


62/99

____________________

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

-24- 24


63/99

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


64/99

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


65/99

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.


66/99

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


67/99

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


68/99

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


69/99

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.


70/99

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

-27- 27


71/99

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


72/99

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.


73/99

-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


74/99

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).


75/99

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


76/99

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. ____________________


77/99

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


78/99

____________________

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


79/99

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 ___ _______


80/99

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.


81/99

-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


82/99

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


83/99

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


84/99

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


85/99

___ _____________________________ ____

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


86/99

___ __________

(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 _______________


87/99

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


88/99

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

-34- 34


89/99

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 ____


90/99

(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


91/99

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

-35- 35


92/99

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 _______


93/99

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


94/99

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).

-36- 36

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 ________ ___________


95/99

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. ___


96/99

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

-37- 37


97/99

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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-38-

38

Adams v. Zimmerman, 1st Cir. (1996)

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