Mercurius Investment Holding, Ltd. v. Aranha

United States Court of Appeals
For the First Circuit

No. 00-2306

MERCURIUS INVESTMENT HOLDING, LTD.,

Appellant,

v.

WAYNE J. ARANHA AND ISHMAEL LIGHTBOURNE, OFFICIAL LIQUIDATORS OF
THORNHILL GLOBAL DEPOSIT FUND, LTD.,

Appellees.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Rya W. Zobel, U.S. District Judge]

Before

Selya, Boudin, and Lynch, Circuit Judges.

Peter J. Haley, with whom Stephen F. Gordon, Gordon & Wise,
Gardere & Wynne LLP, John C. Nabors, and Holland Neff O'Neil were on
brief, for appellant.
Richard A. Oetheimer, with whom Goodwin Procter LLP, Daniel M.
Glosband, and Colleen A. Murphy were on brief, for appellees.

May 3, 2001
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 LYNCH, Circuit Judge.

This is a dispute over the control of $3 million

deposited in February 1999 in a client-fund account of a

Boston law firm. The essence of the dispute is whether the

account was a valid escrow account. If it was, then the funds

may be within direct reach of Mercurius Investment Holding,

Ltd., which invested the same amount of funds in Thornhill

Global Deposit Fund, Ltd., now in liquidation in the Bahamas;

if it was not, then the funds are under the control of the

foreign liquidators of Thornhill, and Mercurius is simply one

of a long list of claimants in line in the Bahamas

proceedings. We affirm the holding of the lower court that

Thornhill and Mercurius never created an escrow account, so

that the funds properly belong with Thornhill’s liquidators.

I.

The following facts are not in dispute. After its

$3 million investment in Thornhill went sour, Mercurius

brought suit for fraud in Massachusetts state court in

December 1998. Seeking prejudgment security, Mercurius

requested that the court issue a preliminary injunction

barring Thornhill from distributing any of its assets.

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Instead, the court issued an order that Thornhill place the

contested funds in escrow. The order, issued on January 11,

1999, stated in relevant part:

THAT, the Defendant Thornhill Global Deposit
Funds Limited shall deposit into an escrow account
within the United States jointly held by counsel for
the Plaintiff . . . and counsel for the Defendants .
. . the amount of three million dollars
($3,000,000.00 U.S.), in accordance with the terms
and conditions of an escrow agreement between
counsel (or absent such agreement upon further order
of the Court) . . . .

Counsel for the parties then exchanged a series of

letters, in which both parties proposed draft escrow

agreements wherein various banks were nominated to serve as

the escrow agent. In the middle of this exchange, on February

2, counsel for Mercurius sought assurances that Thornhill

intended to fund the escrow account. In response, on February

4, Thornhill's counsel, Hill & Barlow, called Mercurius'

counsel to verify that Thornhill had deposited $3 million into

the firm's client-fund account. That same day, counsel for

Mercuirus faxed a one-sentence letter to Thornhill's counsel

suggesting that the funds were now held in escrow. The letter

stated: "This is to confirm our recent telephone conversation

in which you informed me that your client . . . has deposited

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three million dollars ($3,000,000.00) into your firm's escrow

account pursuant to [the state court's] January 11, 1999

Order." Hill & Barlow did not answer the letter, and

negotiations between counsel for the two parties continued.

On February 10, Hill & Barlow sent another draft escrow

agreement to counsel for Mercurius for his consideration;

counsel for Mercurius responded by asking for an electronic

copy of the draft so that he could more easily make edits.

Negotiations had proceeded no further when, on

February 24, 1999, Thornhill went into bankruptcy in the

Bahamas. A suggestion of bankruptcy was filed in the

Massachusetts state court the next day. Thereupon, counsel

for Mercurius again sent a letter indicating that he believed

the $3 million had already been placed into escrow: the letter

advised counsel for Thornhill that "Mercurius continues to

expect that you . . . will take no action to transfer or

alienate the $3 million escrow account." In a follow-up

letter some weeks later, counsel from Hill & Barlow denied

that any escrow account had ever been created, and noted that,

due to the initiation of the Bahamian bankruptcy proceedings,

the contested funds were now under the authority of

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Thornhill's liquidators. Subsequently, the liquidators

requested that Hill & Barlow transfer the funds to them; but

Hill & Barlow refused, citing the risk of being found in

contempt of the state court escrow order.

On March 25, 1999, Thornhill's liquidators brought

this ancillary proceeding in U.S. Bankruptcy Court under 11

U.S.C. § 304 to enjoin continuation of the state court action

and to order the turnover of the $3 million for administration

in the Bahamian bankruptcy proceedings. The bankruptcy court,

in a well-reasoned decision, entered summary judgment in favor

of the liquidators. Thornhill Global Deposit Fund, Ltd. v.

Eagle Fund, Ltd., 245 B.R. 1 (Bankr. D. Mass. 2000). The

court found that no escrow account had been created, so

ownership of the funds remained in Thornhill; accordingly, it

ordered that the funds be turned over to Thornhill’s

liquidators. Id. at 4. The district court affirmed the

bankruptcy court's ruling. Mercurius requested a stay pending

appeal from this court, which was denied. Thereupon, Hill &

Barlow transferred the $3 million to Thornhill's liquidation

estate, where it is presently being administered.

II.

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 Under Massachusetts law, which controls here, "[t]o

deposit a sum in escrow is simply to deliver it to a third

party to be held until the performance of a condition or the

happening of a certain event." Childs v. Harbor Lounge of

Lynn, Inc., 255 N.E.2d 606, 608 (Mass. 1970); see also Black's

Law Dictionary 565 (7th ed. 1999) (defining escrow as "[t]he

general arrangement under which . . . property is delivered to

a third person until the occurrence of a condition"). An

escrow agreement need not be embodied in a formal contract and

may be inferred from an exchange of letters. See, e.g.,

Kaarela v. Birkhead, 600 N.E.2d 608, 609-10 (Mass. App. Ct.

1992). Moreover, while cases often speak of funds in escrow

as being held by a third party, one party's counsel may act as

an escrow holder so long as the parties agree that in this

capacity counsel is to serve not as "the agent of either of

the parties," but as "a fiduciary of both of them." Id. at

610.

Thus, here, the only question is whether the

correspondence between counsel for Mercurius and Thornhill

establishes that the two ever agreed that Hill & Barlow would

hold the contested funds for both parties until the occurrence

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of some specified condition.1 It is immediately clear from

the record, and Mercurius concedes, that the two never agreed

that the funds would be held by Hill & Barlow until resolution

of the state court action, as contemplated by the state

court's escrow order. Reaching such an agreement was the

object of their unfinished negotiations in early 1999; both

counsel envisioned that Mercurius and Thornhill would sign a

formal instrument setting forth the terms of the escrow

agreement and designating a bank to serve as escrow agent.

Mercurius acknowledges those negotiations never came

to fruition, but it argues that counsel for the two parties

did arrive at an interim escrow agreement on February 4, when

(Mercurius says) the two agreed that Hill & Barlow would hold

the funds until a final escrow agreement was concluded. But

1 Contrary to Mercurius' contention in its brief, this
issue is ripe for summary judgment. The relevant facts are not
in dispute; what is disputed is the legal question of whether
the exchange of communications between the parties gave rise to
a valid escrow agreement. At oral argument, counsel for
Mercurius argued that a trial would allow it the opportunity to
examine counsel from Hill & Barlow in order to show that the two
shared an understanding that Hill & Barlow held Thornhill's
funds in escrow. However, as counsel conceded, counsel had no
excuse for not acquiring such evidence during discovery by way
of affadavit or deposition. (Hill & Barlow does not represent
Thornhill's liquidators in this case.)

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the evidence in the record does not suffice to prove the

existence of such an interim agreement. Rather, while there

are certainly indications that Mercurius considered Hill &

Barlow bound to hold the funds pending a final escrow

agreement, those expectations appear to have been merely

unilateral.

Mercurius points to two facts in the record in

support of its claim to the contrary. First, Mercurius cites

the fact that its counsel's facsimile of February 4, which

sought to confirm that the $3 million was now being kept in an

"escrow account" by Hill & Barlow, was never answered,

indicating that Thornhill assented to that characterization.

But silence does not ordinarily imply assent, see Polaroid

Corp. v. Rollins Envtl. Servs., 624 N.E.2d 959, 964 (Mass.

1993); see also W. Hovey & A. Koenig, 16B Mass. Prac. § 62.1,

at 180 (4th ed. 1999) (escrow agreements governed by same law

as governs contracts generally), and Mercurius had no special

reason to infer assent in the circumstances here. The letter

from Mercurius' counsel followed notification that Thornhill

had wired $3 million to Hill & Barlow; this transfer, in turn,

came on the heels of Mercurius' demand for assurance that

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Thornhill intended to comply with the state court's escrow

order and that the requisite funds had been made available to

its counsel. But providing one's agent with funds eventually

to be placed in escrow is not equivalent to entering a binding

escrow agreement in the interim. Mercurius' counsel had no

reason to assume that Thornhill had relinquished control over

the funds simply by making them available to its agent.2

Indeed, given the level of care Hill & Barlow clearly wanted

taken before its client entered the escrow agreement ordered

by the state court (as indicated by counsel's exchange of

lengthy drafts), it was unreasonable to believe that the firm

would have ever intended to sign off on any interim agreement

as casually as Mercurius suggests.3

2 Hence, this case differs significantly from the
Birkhead case on which Mercurius relies. See supra. In
Birkhead, not only did the parties unambiguously arrive at an
agreement that one party's counsel would hold funds in escrow,
but also it was the seller's attorney who was to act as escrow
agent for the purchaser's funds. See 600 N.E.2d at 610. Thus,
the deposit of funds with the attorney necessarily entailed a
relinquishment of control by the grantor. Where, as here, the
grantor deposits funds with its own attorney, no such
implication necessarily arises.
3 Moreover, even assuming that Hill & Barlow's silence
could have signaled assent, there was nothing in the letter to
assent to, for the letter did not describe any escrow agreement

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 Second, Mercurius argues that the fact that Hill &

Barlow refused to surrender the $3 million to Thornhill's

liquidators for fear of being held in contempt shows that it

considered itself to be holding the funds in escrow pursuant

to the state court's order; otherwise it would have had no

reason to fear being held in contempt. But one need not make

that leap. Hill & Barlow had earlier denied that any escrow

account had been created. Its refusal to release the funds to

Thornhill's liquidators cannot fairly be construed as an

admission to the contrary; rather, it most likely reflected a

cautious choice to maintain the status quo in light of the now

multiple proceedings in which the fate of the funds was being

contested.

Affirmed. Costs to Thornhill's liquidators.

in sufficiently definite terms. An escrow agreement must
specify the condition on which funds will be released. The
February 4 letter did not do so, but merely stated without
elaboration that the letter was intended to confirm that $3
million had been placed into "your firm's [i.e., Hill &
Barlow's] escrow account." Merely characterizing an account as
an "escrow account" does not render it so.

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