Resolution v. Driscoll ( 1993 )


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  • USCA1 Opinion









    February 16, 1993
    UNITED STATES COURT OF APPEALS
    For The First Circuit
    ____________________

    No. 92-1805

    RESOLUTION TRUST CORPORATION, ETC.,

    Plaintiffs, Appellees,

    v.

    DANIEL M. DRISCOLL, JR.,
    INDIVIDUALLY AND AS HE IS TRUSTEE OF
    QUINAQUISSET REALTY TRUST, ET AL.,

    Defendants, Appellants.


    ____________________

    APPEAL FROM THE UNITED STATES DISTRICT COURT

    FOR THE DISTRICT OF MASSACHUSETTS

    [Hon. William G. Young, U.S. District Judge]
    ___________________

    ____________________

    Before

    Breyer, Chief Judge,
    ___________
    Higginbotham, Senior Circuit Judge,*
    ____________________
    and Boudin, Circuit Judge.
    _____________

    ____________________

    J. Daniel Lindley with whom Peter Antell and Antell & Associates
    _________________ _____________ ____________________
    were on brief for appellants.

    James H. Wexler with whom Bennett H. Klein and Kotin, Crabtree,
    ________________ _________________ ________________
    and Strong were on brief for appellees.
    ___ ______

    ____________________

    February 16, 1993
    ____________________
    ____________________
    *of the Third Circuit, sitting by designation.



















    BOUDIN, Circuit Judge. This appeal is one branch of a
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    complex commercial matter still pending in the district

    court. The case derives from a set of entangled transactions

    that have been further complicated by an intervening bank

    failure. Perceiving reasons for a prompt resolution of

    claims against one party, the district court entered a

    separate final judgment as to those claims, and this appeal

    followed. We affirm.

    I.

    In the mid-1980's, the Fox Run Realty Trust ("Fox Run")

    set out to develop a residential complex in Mashpee,

    Massachusetts, known as "Willowbend." In December 1986, the

    Quinaquisset Realty Trust ("Quinaquisset") conveyed to Fox

    Run 152 acres of land adjoining the Fox Run holding, allowing

    the project to be expanded. In exchange, Quinaquisset

    received a large payment and the promise of a number of house

    lots and of condominiums or permits for them after

    subdivision approval. Fox Run's obligations to Quinaquisset

    were secured by a first mortgage on the 152 acres. At the

    same time, Sentry Federal Savings Bank ("Sentry") loaned Fox

    Run $13 million to finance Willowbend, taking back a note

    secured by a mortgage on Willowbend, subordinated as to the

    152 acres.

    In October 1987, Fox Run conveyed to Quinaquisset 20

    house lots and the rights to 22 or 23 condominium permits (we



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    are given different numbers in the briefs). The Quinaquisset

    mortgage on the 152 acres was discharged. Fox Run then

    repurchased the permit rights for cash and an unsecured $1.1

    million note to Quinaquisset. Then, in April 1989,

    Quinaquisset borrowed $950,000 from Sentry, giving Sentry a

    note and depositing with it as collateral the earlier $1.1

    note reflecting Fox Run's debt to Quinaquisset. At this

    point, Fox Run was indebted to Quinaquisset and both were

    indebted to Sentry.

    In September 1989 Fox Run fell into default on payments

    to Sentry, and Sentry began to foreclose on Willowbend. In

    April 1990, Sentry and Fox Run entered into a settlement

    agreement; Fox Run agreed to convey title in Willowbend to

    Sentry or to Evergreen Holding Company ("Evergreen"), a

    wholly owned subsidiary of Sentry, and Sentry agreed not to

    claim under the note against two individuals who had

    guaranteed Fox Run's debt to Sentry. Sentry's mortgage on

    Willowbend, however, was not discharged; rather Evergreen

    took the property subject to Sentry's power to sell pursuant

    to the mortgage.

    In the meantime, it appears that Fox Run had ceased in

    August 1989 to make payments to Quinaquisset on the $1.1

    million note payable to Quinaquisset but held by Sentry as

    collateral. In November 1989, Quinaquisset fell behind in

    payments on its own $950,000 note to Sentry. In May 1990,



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    Quinaquisset was in default, and Sentry brought suit on the

    $950,000 note in Middlesex Superior Court, claiming not only

    against Quinaquisset's trustee, Daniel M. Driscoll, Jr., but

    also against a number of individuals who had guaranteed the

    note ("the guarantors"). For simplicity, we will refer

    collectively to the trustee and guarantors, appellants in

    this court, as "Quinaquisset."

    Sentry also proceeded with efforts to foreclose the

    Willowbend mortgage, seeking to sell both the property and

    the associated rights to the condominium permits that Fox Run

    had transferred to Quinaquisset and then reacquired. When

    Quinaquisset threatened to delay the mortgage sale by

    litigation, Sentry and Quinaquisset entered into an agreement

    on June 22, 1990. That agreement (in the first paragraph)

    released Sentry's mortgage on the 20 house lots previously

    conveyed to Quinaquisset; and Quinaquisset, subject to

    certain reservations of rights described in the margin,

    agreed (in the second paragraph) not to enjoin the

    foreclosure sale "or to take any further action subsequent

    thereto with reference to the validity of said foreclosure or

    the [m]ortgages relating thereto."1 The foreclosure sale


    ____________________

    1This promise was qualified in the same paragraph by
    this language: "provided, however, that Quinaquisset reserves
    its rights, claims and remedies, if any, relating to (i)
    Sentry's dealings with [the two individuals who had
    guaranteed Fox Run's note to Sentry], and (ii) Sentry's
    dealings with Quinaquisset regarding the [m]ortgage being
    released . . . ." In the third paragraph, the parties

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    proceeded, there were multiple bidders, and at the sale

    Evergreen acquired Willowbend.

    In September 1990, Sentry failed and the Resolution

    Trust Company ("RTC") became its receiver. The RTC created a

    new bank entity; the RTC became conservator of the new

    entity, which received various Sentry assets including

    Evergreen. The RTC, as receiver for Sentry, removed to the

    district court the litigation in Middlesex Superior Court

    brought by Sentry against Quinaquisset to recover on the

    $950,000 note.

    II.

    On May 22, 1991, Quinaquisset filed a new pleading in

    the district court action, including for the first time

    Evergreen, now named as a third party defendant.

    Quinaquisset's amended consolidated answer, counterclaim and

    third party complaint is one of those documents that portend

    a lot of litigation. Claims were directed against the RTC as

    receiver for Sentry and conservator of the new entity,

    against Fox Run's trustees, and against Evergreen; there were

    12 counts, alleging multiple wrongs and numerous legal

    theories; and the relief sought included recision of various

    transactions, imposition of constructive trusts, and damages.




    ____________________

    agreed, "with the exception of the foregoing, to reserve
    without prejudice their rights, claims or remedies" in the
    Middlesex Superior Court action.

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    As only the claims against Evergreen are at issue on

    this appeal, we confine ourselves to the procedural steps and

    rulings concerning it. Describing the claims against

    Evergreen is not easy because very little in the May 22,

    1991, pleading relates directly to it. There are specific

    allegations against others, notably Sentry, including claims

    of misrepresentation and trickery in the transactions that

    led to Quinaquisset's discharge of its mortgage, the

    reconveyance of the permit rights to Fox Run, Sentry's

    refusal to fund interest payments by Fox Run on its debt to

    Quinaquisset, and alleged attempts by Sentry to cloud title

    to the house lots conveyed to Quinaquisset. The pleading

    does claim that Evergreen holds the permit rights in a

    constructive trust and seeks recision of the original

    transfer to Fox Run.

    In June 1991, Evergreen filed a motion to dismiss or for

    summary judgment. On September 10, 1991, the district court

    granted summary judgment for Evergreen on the count seeking

    recision, concluding that the recision count sought to

    challenge Evergreen's title to Willowbend; this, the district

    court found, was inconsistent with Quinaquisset's obligations

    under the agreement of June 22, 1990, quoted above, that had

    permitted the mortgage sale to proceed. On April 21, 1992,

    the court granted summary judgment for Evergreen on the

    remaining counts. The court did not issue a written opinion



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    but it appears that the dismissal was premised on the

    D'Oench, Duhme doctrine, which limits claims based on matters
    ______________

    not reflected in bank records. See D'Oench, Duhme & Co. v.
    ___ ____________________

    FDIC, 315 U.S. 447 (1942).2
    ____

    On May 12, 1992, the district court ordered the separate

    entry of judgment in favor of Evergreen on all counts,

    finding pursuant to Fed. R. Civ. P. 54(b) that there was no

    just reason for delay. We pass over related procedural

    history and note that the reason for the separate judgment

    stemmed from an earlier determination by the district court

    that the recision claim against Evergreen needed a prompt

    definitive resolution so that Evergreen could complete the

    sale of Willowbend to a prospective buyer. Since

    Quinaquisset was seeking immediate appellate review of the

    recision claim, the district court thought it suitable that

    all claims against Evergreen should be before this court at

    the same time. Thus, the judgment dismissing all claims

    against Evergreen is properly before us; the balance of the








    ____________________

    2The district court relied on the doctrine in a
    memorandum and order of July 19, 1991, granting summary
    judgment to the RTC on all counts except the recision
    request; that request had been dismissed by the court in
    early May 1991 based on the agreement of June 22, 1990. In
    an order dated May 12, 1992, the court indicated that the
    same reasoning was implicated in Evergreen's case.

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    litigation involving other parties remains in the district

    court.3




































    ____________________

    3Quinaquisset contests the Rule 54(b) certification but
    its argument is unpersuasive. The thread of the argument is
    that to enter a judgment facilitating a sale of Willowbend
    could impair Quinaquisset's prospects of recovering the
    permit rights. If so, Quinaquisset was free to seek a stay
    of judgment from the district court or from us. Absent a
    showing that would warrant a stay, the desire to facilitate a
    sale of assets, in connection with a bank reorganization, is
    a perfectly good ground for the Rule 54(b) determination.
    See generally Curtiss-Wright Corp. v. General Electric Co.,
    _____________ ___________________ ___________________
    446 U.S. 1, 8 (1980).

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    III.

    Like the district court we separate the claim for

    recision against Evergreen from the balance of the claims

    against it. Our reason for doing so is that a claim to

    recover property is the one line of attack made by

    Quinaquisset that we can imagine succeeding against Evergreen

    without a separate showing of wrongful conduct by Evergreen.
    ____________

    Putting to one side a possible D'Oench, Duhme defense, there
    _______________

    might be circumstances in which Evergreen--without any

    wrongdoing on its part--became a holder of property

    wrongfully taken by Sentry or others from Quinaquisset. In

    that case, whether by recision, constructive trust or some

    other theory or device, perhaps the property could (in some

    circumstances) be reached even though in the hands of an

    innocent possessor.

    The district court foreclosed this possibility by ruling

    on September 10, 1991, that the June 22, 1990, agreement

    between the parties prevented such a recovery. Treating

    Evergreen's title as derived from the foreclosure sale, the

    district court interpreted the agreement as preventing a

    subsequent attack on the resulting title and ruled that

    "Evergreen owns the property free of any title defect . . .

    ." Quinaquisset asserts that the district court misconstrued

    the agreement, ignoring the reservation of rights provisos.





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    Subject to the rights reservations, Quinaquisset agreed

    in the June 22 document not to obstruct the foreclosure sale

    "or to take any further action subsequent thereto with

    reference to the validity of said foreclosures or the

    [m]ortgages relating thereto . . . ." Evergreen argues that

    "[t]he clear meaning of the [agreement] . . . is that

    Quinaquisset agrees not to take any action to challenge or

    impair the foreclosure purchaser's title in Willowbend." The

    reservations of rights, it argues, were meant to retain

    Quinaquisset's damage claims, and not its right to institute

    a future action affecting title to Willowbend or the

    attendant permit rights.

    We think this interpretation not quite so clear as does

    Evergreen, the agreement being something less than a model of

    clarity. There is, after all, no express promise not to

    "challenge or impair the foreclosure purchaser's title in

    Willowbend." But we agree that Evergreen's reading, endorsed

    by the district court, is better than any alternative

    reading, considering the general language used ("any further

    action . . . with reference to the validity of said

    foreclosures or the [m]ortgages relating thereto") together

    with the purpose to protect the foreclosure-sale buyer that

    one would expect in such circumstances. If the "any further

    action" promise is read in this way, then it is easy to





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    construe the even more general language of the rights

    reservations to relate to other claims such as damages.

    We might be more hesitant to reach this conclusion if

    Quinaquisset had offered to us and the district court another

    reasonable reading of the "any further action" clause, or if

    it pointed to evidence produced or promised in the district

    court to show that the parties intended the clause to have

    some other meaning. But no other reading has been tendered

    and no such evidence has been proffered. Instead,

    Quinaquisset emphasizes the rights reservations which, as we

    have noted, are quite general, ought not readily be read to

    take back in the proviso what Quinaquisset appears to have

    promised immediately before, and can easily be understood to

    refer to other remedies such as damages.

    Given the district court's interpretation which we

    sustain it becomes fruitless for Quinaquisset to argue, as it

    does at length, that it might otherwise have a claim to

    recover the permits from Evergreen. Assuming it had such

    claims, whether by recision or constructive trust, it has

    surrendered them by the agreement. This court need not

    decide Quinaquisset's alternative, last ditch and facially

    doubtful argument that Evergreen never acquired the permits

    at all (allegedly because their acquisition by Fox Run in

    October 1987 was "illegal"); the claim cut off by the

    judgment is Quinaquisset's claim to recover property from



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    Evergreen. The judgment does not address property that

    Evergreen never received in the foreclosure.

    IV.

    Turning now to the remaining claims against Evergreen,

    we sustain their dismissal on a ground not adopted by the

    district court. See Doe v. Anrig, 728 F.2d 30, 32 (1st Cir.
    ___ ___ _____

    1984) (court "free to affirm . . . on any ground supported by

    the record"). Both parties treat the district court as

    having dismissed those claims in reliance on the D'Oench,
    ________

    Duhme doctrine, and we believe this is so. But there is no
    _____

    district court opinion applying D'Oench, Duhme to Evergreen.
    ______________

    Although the district court did discuss the doctrine as

    applied to the RTC, Quinaquisset seeks to distinguish

    Evergreen's status under the doctrine. We think that there

    is in the foreground of this case another basis for

    sustaining the dismissal--the failure to state a claim

    against Evergreen--and we rest our affirmance on that basis.



    Evergreen is admittedly a separate corporation and was

    apparently not a party to Fox Run's acquisition of the

    permits or the Fox Run-Sentry agreement. The complaint may

    in a literal sense "charge" Evergreen with wrongs such as

    fraud, misappropriation, and unfair competition; but no facts

    are ever alleged that connect Evergreen with the wrongful

    acts described. The complaint does nakedly assert that



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    Evergreen is the "alter ego" of Sentry, the implication being

    that it is thereby responsible for Sentry's conduct. Yet

    Quinaquisset alleges no facts that, if proved, would even

    arguably permit a court to impose liability on Evergreen for

    the acts of its parent under an alter ego theory. See
    ___

    generally United Electrical, Radio and Machine Workers of
    _________ __________________________________________________

    America v. 163 Pleasant Street Corporation, 960 F.2d 1080,
    _______ ________________________________

    1092 (1st Cir. 1992).

    Similarly, the complaint asserts in one conclusory

    sentence that Fox Run's obligations to Quinaquisset were

    "assumed by Sentry or Evergreen" when Willowbend was

    acquired. Nothing else in the complaint identifies any act

    or document reflecting such an assumption by Evergreen of Fox

    Run's debt to Quinaquisset or remotely suggests the factual

    basis for this claim. Factual allegations in a complaint are

    assumed to be true when a court is passing upon a motion to

    dismiss, but this tolerance does not extend to legal

    conclusions, Kadar Corp. v. Milbury, 549 F.2d 230, 235 (1st
    _______________________

    Cir. 1977), or to "bald assertions." Chongris v. Board of
    ________ ________

    Appeals of the Town of Andover, 811 F.2d 36, 37 (1st Cir.),
    _______________________________

    cert. denied 483 U.S. 1021 (1987).
    ____ ______

    It is, of course, true that at the start of complex

    litigation a party may not have all the facts, so courts

    normally hesitate to dismiss under Fed. R. Civ. P. 12(b)(6)

    at the outset. At the start, a reasonable basis for belief



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    and an outline of what one might reasonably hope to prove may

    suffice to permit discovery and ward off premature motions to

    dismiss. But Quinaquisset's complaint against Evergreen is

    deficient; this litigation has persisted for almost two

    years; and yet even now Quinaquisset is still unable to

    explain what exactly it is that Evergreen did that is

    wrongful. The only claims at issue on this appeal are those

    relating to Evergreen. No amount of embellished attack on

    Fox Run, Sentry or the RTC can replace what Quinaquisset has

    still not supplied: a single, coherent, specific description

    of what Evergreen has done that is wrongful.

    Our appraisal of Quinaquisset's claims against Evergreen

    is without prejudice to whatever claims it may assert against

    others. Part of its predicament may be of its own making:

    for unexplained reasons, it released a mortgage on part of

    Willowbend, reconveyed valuable permit rights to Fox Run, and

    took back an unsecured note on which Fox Run later defaulted.

    On the other hand, this misstep, if such it was, does not

    preclude the possibility that out of the welter of

    surrounding events a claim was created against other active

    participants. Whether this is so, and if so whether such a

    claim is nevertheless barred by D'Oench, Duhme, are matters
    _______________

    on which we have no occasion to pass at this time.

    We conclude that, apart from seeking to recover property

    from Evergreen, Quinaquisset has failed to state a claim upon



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    which relief can be granted. The property recovery claim is

    barred by the agreement for reasons already stated. Thus the

    balance of the claims fail under Fed. R. Civ. P. 12(b)(6) and

    on this ground we affirm the district court's dismissal of

    those claims. It will be time enough to consider D'Oench,
    ________

    Duhme when the rest of this litigation, now nine-tenths
    _____

    submerged like the proverbial iceberg, reaches this court.

    Affirmed.
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