USCA1 Opinion
February 16, 1993
UNITED STATES COURT OF APPEALS
For The First Circuit
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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.
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APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. William G. Young, U.S. District Judge]
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Before
Breyer, Chief Judge,
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Higginbotham, Senior Circuit Judge,*
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and Boudin, Circuit Judge.
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J. Daniel Lindley with whom Peter Antell and Antell & Associates
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were on brief for appellants.
James H. Wexler with whom Bennett H. Klein and Kotin, Crabtree,
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and Strong were on brief for appellees.
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February 16, 1993
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*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
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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.
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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
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not reflected in bank records. See D'Oench, Duhme & Co. v.
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FDIC, 315 U.S. 447 (1942).2
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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
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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
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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.,
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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.
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Putting to one side a possible D'Oench, Duhme defense, there
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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.
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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,
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Duhme doctrine, and we believe this is so. But there is no
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district court opinion applying D'Oench, Duhme to Evergreen.
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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
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generally United Electrical, Radio and Machine Workers of
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America v. 163 Pleasant Street Corporation, 960 F.2d 1080,
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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
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Cir. 1977), or to "bald assertions." Chongris v. Board of
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Appeals of the Town of Andover, 811 F.2d 36, 37 (1st Cir.),
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cert. denied 483 U.S. 1021 (1987).
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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
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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,
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Duhme when the rest of this litigation, now nine-tenths
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submerged like the proverbial iceberg, reaches this court.
Affirmed.
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