Perry v. Blum

             United States Court of Appeals
                        For the First Circuit

No. 09-1977

             MICHAEL PERRY AND CONDOMINIUM HOUSING, INC.,

                        Plaintiffs, Appellees,

                                  v.

   STEVEN BLUM, AS TRUSTEE OF MOORINGS NOMINEE TRUST, ET AL.,

                        Defendants, Appellants.




             APPEAL FROM THE UNITED STATES DISTRICT COURT
                   FOR THE DISTRICT OF MASSACHUSETTS

               [Hon. Nancy Gertner, U.S. District Judge]




                                Before

               Thompson, Selya and Dyk,* Circuit Judges.



     Michael S. Gardener, with whom Laurence A. Schoen, Mintz,
Levin, Cohn, Ferris, Glovsky and Popeo, P.C., Michael A. Collora,
Ingrid S. Martin, and Dwyer & Collora, LLP were on brief, for
appellants.
     Matthew H. Feinberg, with whom Matthew A. Kamholtz, Daniel
Klubock, and Feinberg & Kamholtz, were on brief, for appellees.



                            October 1, 2010



     *
         Of the Federal Circuit, sitting by designation.
           SELYA, Circuit Judge.         This appeal requires us to sort

through a complicated set of commercial machinations and evaluate

the soundness of an equitable accounting through which the lower

court   divided   the   surplus   proceeds      of   a   multi-million-dollar

foreclosure sale.       To solve this conundrum, we must answer three

loosely related questions. The first concerns the applicability of

the doctrine of judicial estoppel, the second concerns the way in

which the methodology for calculating the equity of redemption fits

within the framework of a judicial accounting, and the third

concerns the propriety of a post-trial joinder of additional

defendants.   After careful consideration of these questions, we

reject the district court's proposed application of the doctrine of

judicial   estoppel     but   uphold   its   treatment    of   the   equity   of

redemption and its joinder order.            When all is said and done, we

affirm in part, reverse in part, vacate the judgment, and remand

for further proceedings consistent with this opinion.

I.   BACKGROUND

           Although there is a long, convoluted, and sometimes

Machiavellian history involving the protagonists, we relate here

only those facts relevant to the issues presented on appeal.                  We

supplement this account in connection with our discussion of

particular issues.       Throughout, we accept the district court's

factual findings to the extent that they are not clearly erroneous.

Limone v. United States, 579 F.3d 79, 94 (1st Cir. 2009); Cumpiano


                                       -2-
v. Banco Santander P.R., 902 F.2d 148, 152 (1st Cir. 1990); Fed. R.

Civ. P. 52(a).

          Michael Perry and Stephen Yellin each hold a fifty

percent interest in Condominium Housing, Incorporated (CHI), which

owned a large apartment complex in Boston, Massachusetts, known as

"the Fenmore."   CHI purchased the Fenmore from Harold Brown in

1985.   The purchase price included two promissory notes, with an

aggregate face value of approximately $11,000,000 (the Notes),

executed by Perry and Yellin as co-makers.    The Notes were secured

by first and second mortgages on the property.

          Over time, Perry and Yellin made payments on the Notes.

But when the Boston real estate market cratered in the late 1980s,

they defaulted on several obligations, including not only the Notes

but also an array of loans from their primary lender, Capitol Bank

(which, among other things, held a third mortgage on the Fenmore).

By 1990, Perry and Yellin owed Capitol Bank more than $7,000,000.

They negotiated a settlement with the bank in July of that year,

but the settlement proved to be illusory.     The bank subsequently

repudiated it, and Perry and Yellin were forced to sue for specific

performance in a Massachusetts state court.

          During the currency of that suit, the Federal Deposit

Insurance Corporation (FDIC) took over Capitol Bank as its receiver

and liquidating agent.   The FDIC sought to collect Perry's and

Yellin's indebtedness to the bank, claiming that they owed roughly


                               -3-
$19,000,000 in principal and accrued interest on various loans. As

part of its collection effort, the FDIC disavowed the earlier

settlement and, in January of 1999, filed an amended counterclaim

in the state court suit.

            The       amended   counterclaim       named   as   defendants    Perry,

Yellin,   and     a    number     of    their    relatives.     These      additional

defendants (whom we shall call the "Perry Parties" and the "Yellin

Parties") were allegedly involved in Perry's and Yellin's real

estate enterprises as "straws."                 In due season, the FDIC removed

the state court action to the federal district court.                         See 12

U.S.C. § 1819(b)(2)(B).

            Brown's fortunes also had been adversely affected by the

slumping real estate market.               In 1991, he filed for bankruptcy.

The bankruptcy proceedings dragged on and, in August of 1996, he

submitted   an        affidavit    to    the    bankruptcy    court   in    which   he

represented that the Notes had an unpaid balance of $902,662 and

were uncollectible. The bankruptcy court granted Brown a discharge

from bankruptcy in September of 1996 and permitted him to retain

ownership of the Notes.

            CHI went into bankruptcy in April of 1996.                  After Brown

emerged from his own bankruptcy, he intervened in CHI's bankruptcy

and requested relief from the automatic stay, 11 U.S.C. § 362, so

that he could foreclose on the Fenmore. Brown represented that the

Notes had a principal balance of $902,662 and past-due interest of


                                           -4-
$950,620.      The bankruptcy court granted Brown's motion to lift the

stay in December of 1996.             Instead of foreclosing, however, Brown

agreed    to    sell    the     Notes       to   Yellin     for    $950,000.            Yellin

effectuated this purchase behind Perry's back and through a straw:

Steven Blum, in his capacity as trustee of Moorings Nominee Trust.

The sole beneficiary of the trust was North Shore Renewal, Inc., a

shell corporation wholly owned by Yellin's wife, Elaine.                               Yellin,

acting    through      Blum,    then    took       control    of    the    Fenmore       as    a

mortgagee-in-possession and began collecting rents.

               In June of 1997, Perry, on behalf of CHI, sued the

Yellins and Blum, individually and as trustee of Moorings Nominee

Trust, in a Massachusetts state court.                            The suit alleged an

alphabet of wrongdoing, including breach of fiduciary duty, fraud,

and conversion, stemming from the purchase of the Notes.                                      In

October    of    1998,    after       Perry      failed      to    attend       a     pretrial

conference,      the    state       court    dismissed       the    suit       for    want    of

prosecution.       CHI v. Blum, No. 97-3007 (Mass. Dist. Ct. Oct. 7,

1998) (unpublished order).

               In late 1997, Yellin, acting through Blum, commenced

foreclosure proceedings with respect to the Fenmore.                                 The FDIC,

which held junior mortgages on the property as the receiver for

Capitol Bank, responded by bringing an action in the federal

district court.          In the action, the FDIC sought to enjoin any

foreclosure      sale.        The    district       court    granted       a    preliminary


                                             -5-
injunction blocking the foreclosure sale.    Later, it consolidated

the action in which it had granted the injunction with the action

that the FDIC had removed from the state court.

            In 2002, Yellin and the Yellin Parties settled with the

FDIC for $5,000,000.    Under the terms of the settlement, the FDIC

permitted Yellin, acting through Blum, to foreclose on the Fenmore

and use the first $5,000,000 of the foreclosure proceeds to fund

the settlement.      The district court thereafter dissolved the

existing injunction and Blum foreclosed on the Fenmore.         The

apartment complex was sold at auction for $9,450,000 (ironically,

to Brown).    The FDIC and the Yellin Parties then jointly moved to

dismiss all claims inter sese.     The district court granted that

motion on June 10, 2002.1

            Following the foreclosure sale, Perry, on behalf of

himself and CHI, cross-claimed against Blum for an accounting of

both the foreclosure proceeds and all rents collected between 1996

and 2002.    Perry alleged that, as an equal partner in CHI, he was

entitled to one-half of the Fenmore's equity of redemption.

            In February and March of 2005, the district court held a

bench trial on the cross-claim.    The Notes were secured by first

and second mortgages on the Fenmore, so Blum, as the noteholder and

as a straw for Yellin, had a priority claim to the foreclosure



     1
       The FDIC settled separately with the Perry Parties in
November of 2005. The settlement totaled $6,625,000.

                                 -6-
proceeds.       Not surprisingly, then, one of the main issues at trial

concerned the amount due on the Notes.              Blum contended that

$7,494,435 was due.        Perry contended that the amount due was much

less.        The district court determined that Blum was estopped from

asserting that the amount due was anything other than what Brown,

Blum's predecessor-in-interest, had represented in the bankruptcy

court, namely, $1,853,282.        Perry v. Blum (Perry I), No. 99-12194,

slip op. at 30 (D. Mass. Oct. 31, 2008).2          Even though the trial

had ended years earlier, the court granted Perry's motion to join

the Yellins as reach-and-apply defendants.         Id., slip op. at 36.

                Before the court actually made a final accounting, Blum

and the Yellins moved for reconsideration of Perry I, arguing that

the court had erred in applying judicial estoppel and in joining

the Yellins after trial.         The court denied the motion, Perry v.

Blum (Perry II), No. 99-12194, slip op. at 2 (D. Mass. June 2,

2009). The court then prepared the accounting and entered judgment

for Perry against Blum and the Yellins in the sum of $4,347,126,

plus        pre-judgment   interest.    The   appendix   to   this   opinion

delineates the manner in which the court calculated this amount.




        2
       The district court also addressed Perry's argument that the
Notes were discharged (and, thus, the amount due was zero). The
court held that this argument was barred by res judicata: the
dismissal of CHI's state court action precluded Perry from
litigating the discharged claim. Perry I, slip op. at 20-27. This
ruling is not challenged on appeal.

                                       -7-
            Blum     and   the   Yellins    moved   to   alter   or    amend    the

judgment, Fed. R. Civ. P. 59(e), protesting that the court had

erred in excluding from its calculation of the equity of redemption

an offset for the $5,000,000 payment that the Yellins had made to

the FDIC — an offset that would have had the effect of reducing

Perry's award by $2,500,000. The district court denied the motion,

reasoning that it would be inequitable to allow Yellin to settle

his personal debts by using foreclosure proceeds that otherwise

would have to be split with Perry.           Perry v. Blum (Perry III), No.

99-12194 (D. Mass. June 18, 2009) (unpublished order).                  Blum and

the Yellins filed a timely motion of appeal from both the final

judgment and the denial of their Rule 59(e) motion.

II.   ANALYSIS

            Like a milking stool, this appeal rests on three legs.

The appellants (Blum and the Yellins) insist that the district

court erred in (i) invoking judicial estoppel, (ii) miscalculating

the   equity    of   redemption,     and    (iii)   adding   the      Yellins    as

defendants after the trial had ended.               We discuss each of these

arguments separately.        Before doing so, however, we pause to make

a point about choice of law.

            Due to the FDIC's involvement, this case had its roots in

federal question jurisdiction.             12 U.S.C. § 1819(b)(2)(A); 28

U.S.C. § 1331.       But the FDIC has departed from the scene, and the

remaining      claims      are   cognizable     only     under     supplemental


                                      -8-
jurisdiction.    28 U.S.C. § 1367.      Where, as here, a federal court

proceeds under supplemental jurisdiction, it is obliged to apply

federal    procedural   law   and   state   substantive   law.   Hoyos   v.

Telecorp Commc'ns, Inc., 488 F.3d 1, 5 (1st Cir. 2007).            To the

extent that procedural issues loom, the Federal Rules of Civil

Procedure provide the beacon by which we must steer.

            Most of the components of the appellants' asseverational

array raise substantive questions and, thus, require us to apply

Massachusetts law.      Withal, one of the issues presents a thorny

problem of classification, which this court has not resolved: Is

judicial estoppel procedural (and, thus, governed by federal law)

or substantive (and, thus, governed by state law)?

            This is an interesting Rubik's cube, but we need not

provide a definitive answer here.           The parties and the district

court all assumed that federal standards of judicial estoppel

governed, and the case has been briefed and argued on the same

assumption.     In such circumstances, we may hold the parties to

their plausible choice of law, whether or not that choice is

correct.    See Thore v. Howe, 466 F.3d 173, 181 n.1 (1st Cir. 2006);

Alt. Sys. Concepts, Inc. v. Synopsys, Inc., 374 F.3d 23, 32 (1st

Cir. 2004). We follow that prudential course and apply federal law

in discussing this issue.




                                     -9-
                           A.     Judicial Estoppel.

            The appellants insist that the district court erred in

invoking judicial estoppel to preclude them from showing that the

amount due on the Notes was anything other than what Brown had

represented in a prior bankruptcy proceeding.               We review for abuse

of discretion a district court's application of judicial estoppel.

Global NAPs, Inc. v. Verizon New Engl. Inc., 603 F.3d 71, 91 (1st

Cir. 2010).       Within that rubric, we accept the trial court's

findings of fact unless they are clearly erroneous, see Limone, 579

F.3d at 94; Cumpiano, 902 F.2d at 152, and evaluate its answers to

abstract questions of law de novo, see San Juan Cable LLC v. P.R.

Tel. Co., 612 F.3d 25, 29 (1st Cir. 2010).                  We treat a material

mistake of law as a per se abuse of discretion.                Rosario-Urdaz v.

Rivera-Hernández, 350 F.3d 219, 221 (1st Cir. 2003).

            The doctrine of judicial estoppel is equitable in nature.

It operates to prevent a litigant from taking a litigation position

that   is   inconsistent    with     a    litigation   position    successfully

asserted by him in an earlier phase of the same case or in an

earlier court proceeding.          InterGen N.V. v. Grina, 344 F.3d 134,

144 (1st Cir. 2003).       The purpose of the doctrine is to protect the

integrity of the judicial process.              It is typically invoked when a

litigant tries to play fast and loose with the courts.                        New

Hampshire    v.   Maine,    532    U.S.    742,    749-50   (2001);   Alt.   Sys.




                                         -10-
Concepts, 374 F.3d at 33; Patriot Cinemas, Inc. v. Gen. Cinema

Corp., 834 F.2d 208, 212 (1st Cir. 1987).

           The contours of judicial estoppel are hazy.     But even

though its elements cannot be reduced to a scientifically precise

formula, New Hampshire, 532 U.S. at 750, courts generally require

the presence of three things before introducing the doctrine into

a particular case.    First, a party's earlier and later positions

must be clearly inconsistent. Id.; Alt. Sys. Concepts, 374 F.3d at

33.   Second, the party must have succeeded in persuading a court to

accept the earlier position.   New Hampshire, 532 U.S. at 750; Alt.

Sys. Concepts, 374 F.3d at 33.   Third, the party seeking to assert

the inconsistent position must stand to derive an unfair advantage

if the new position is accepted by the court.    New Hampshire, 532

U.S. at 751; Alt. Sys. Concepts, 374 F.3d at 33.

           Ordinarily, the party against whom judicial estoppel is

invoked must be the same party who made the prior (inconsistent)

representation.    See InterGen, 344 F.3d at 144 (explaining that

judicial estoppel "prevents a litigant from pressing a claim that

is inconsistent with a position taken by that litigant" in the same

or an earlier proceeding); Brewer v. Madigan, 945 F.2d 449, 455

(1st Cir. 1991) (explaining that judicial estoppel prevents "a

party from taking a position inconsistent with one successfully and

unequivocally asserted by that same party in a prior proceeding").

Courts normally refuse to apply judicial estoppel to one party


                                 -11-
based on the representations of an unrelated party.     See, e.g.,

Parker v. Wendy's Int'l, Inc., 365 F.3d 1268, 1272 (11th Cir.

2004); Bethesda Lutheran Homes & Servs., Inc. v. Born, 238 F.3d

853, 858 (7th Cir. 2001); Tenn. ex rel. Sizemore v. Surety Bank,

200 F.3d 373, 381-82 (5th Cir. 2000); see also 18B Charles Alan

Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice and

Procedure § 4477, at 618-19 (2d ed. 2002).    Nevertheless, courts

sometimes have allowed judicial estoppel when the estopped party

was responsible in fact for the earlier representation, see, e.g.,

Ladd v. ITT Corp., 148 F.3d 753, 756 (7th Cir. 1998), or when the

estopped party was the assignee of a litigation claim or assumed

the original party's role, see 18B Wright et al., supra, § 4477, at

618-19.

          In the case at hand, the district court determined that

the appellants (Blum and the Yellins) should be judicially estopped

from asserting that the amount due on the Notes was $7,494,435

because a third party, Brown, had represented in his own bankruptcy

proceeding that the unpaid balance was a mere $902,662, and had

represented in CHI's bankruptcy that the total amount due on the

Notes (including accrued interest) was $1,853,282.   Perry I, slip

op. at 30.   The court bound the appellants to Brown's earlier

representations primarily on the theory that the appellants, as

purchasers of the Notes, were subject to any defenses that Perry

and CHI could have asserted against Brown himself.     Id. at 31 &


                               -12-
n.15.3      The court reasoned that because Brown would be judicially

estopped from contradicting his prior representations anent the

amount      due    on   the   Notes,   his   assignees   should   be    similarly

estopped.         Id. at 32-36.    The appellants say that Brown's

representations cannot be imputed to them and that, therefore,

judicial estoppel was incorrectly invoked.

              In examining these competing contentions, we take the

underlying substantive law — the law of negotiable instruments —

from       Massachusetts.         Under      Massachusetts   law,      negotiable

instruments, such as the Notes, are governed by Article III of the

Uniform Commercial Code (U.C.C.).                See Mass. Gen. Laws ch. 106,

§ 3-102.      The U.C.C. states that a noteholder's right to enforce a

note is subject to certain defenses.                  Id. § 3-305(a).      These

defenses include those enumerated in section 3-305(a)(1) (often

termed "real defenses"), defenses specifically listed elsewhere in

Article III, and defenses "that would be available if the person

entitled to enforce the instrument were enforcing a right to


       3
       The district court also mentioned approvingly the Fifth
Circuit's decision in In re Coastal Plains, Inc., 179 F.3d 197 (5th
Cir.   1999),   for   the  proposition    that  a   third   party's
misrepresentation may be used to estop an unrelated party. Perry
II, slip op. at 11.     Coastal Plains did not involve unrelated
parties, see 179 F.3d at 203, 213, and in any event, its authority
on this specification is suspect. See, e.g., Biesek v. Soo Line
R.R. Co., 440 F.3d 410, 412-13 (7th Cir. 2006) (declining to follow
Coastal Plains); In re Riazuddin, 363 B.R. 177, 188 & n.53 (B.A.P.
10th Cir. 2007) (same).     Indeed, the Fifth Circuit itself has
distinguished Coastal Plains, based on its unique facts. See Kane
v. Nat'l Union Fire Ins. Co., 535 F.3d 380, 387 (5th Cir. 2008).


                                          -13-
payment     under     a   simple   contract"   (often   termed   "personal

defenses").     Id.       If a noteholder qualifies as a holder in due

course, his right to enforce the note is subject only to real

defenses.    Id. § 3-305(b).

            The appellants do not presume to be holders in due

course.   See Perry II, slip op. at 12.        Thus, they are subject to

the axiom that the rights of a transferee who is not a holder in

due course rise no higher than the rights of the transferor.           See

2 James J. White & Robert S. Summers, Uniform Commercial Code § 17-

11, at 226 (5th ed. 2008).          It follows that the appellants, as

transferees, are subject to the trilogy of defenses described in

section 3-305(a) to the same extent that those defenses would have

been available against the transferor (Brown).          See id.; see also

25 Herbert Lemelman, Massachusetts Practice § 3:150, at 428 (3d ed.

2002) (stating in essence that a holder who is not a holder in due

course is treated under Massachusetts law as the assignee of a

contract).

            This does not mean, however, that the transferor and the

transferee are to be treated as one and the same for all purposes.

Of particular pertinence for present purposes, judicial estoppel

does not fit comfortably within any of the trilogy of defenses

described in section 3-305(a).        Judicial estoppel is certainly not

a "real defense" within the provision of the statute, nor is it a

defense specifically listed anywhere in Article III of the U.C.C.


                                     -14-
This leaves only the category of "personal defenses."

            Personal defenses typically are thought to be "those

based on common law contract principles." Mass. Gen. Laws ch. 106,

§ 3-305(a) cmt. 2; see FDIC v. Wood, 758 F.2d 156, 160 (6th Cir.

1985) ("'Personal' defenses, such as failure of consideration and

usury . . . are defenses or claims stemming from the underlying

transaction."). Judicial estoppel does not fit seamlessly into the

taxonomy of personal defenses, as it is not a defense aimed

directly    at   either   the   validity   or    the   enforceability   of   a

contract.    Rather, it is a judge-made doctrine designed to protect

the integrity of the judicial system.           See New Hampshire, 532 U.S.

at 749. This seeming incongruence gives us some pause about trying

to ram the square peg of judicial estoppel into the round hole of

personal defenses.

            Still, we recognize that the boundaries of judicial

estoppel are hazy.    It is conceivable that cases may arise in which

the doctrine can be considered a personal defense, used to prevent

a noteholder from playing fast and loose with the courts through,

say, engaging a straw to assert a payoff amount contradictory to

one earlier put forth by the noteholder himself. See G-I Holdings,

Inc. v. Reliance Ins. Co., 586 F.3d 247, 262 (3d Cir. 2009) ("We

will apply [judicial estoppel] to neutralize threats to judicial

integrity however they may arise."); cf. FDIC v. Gulf Life Ins.

Co., 737 F.2d 1513, 1518 (11th Cir. 1984) (suggesting that, for


                                    -15-
negotiable instruments, general estoppel may constitute a personal

defense, "to which a holder in due course would be impregnable").

The combinations of possible circumstances are infinitely varied,

and a flat holding that judicial estoppel can be circumvented

simply by transferring property to a third party would be folly.

See generally Sandstrom v. ChemLawn Corp., 904 F.2d 83, 87-88 (1st

Cir. 1990) (emphasizing utility of judicial estoppel as a means of

preventing a party from obtaining an unfair advantage).

           Here, however, we need not grapple with the admittedly

difficult question of whether judicial estoppel may ever qualify as

a personal defense.       In our view, the district court's application

of judicial estoppel suffers from a different infirmity: Perry has

failed to satisfy the second requirement for judicial estoppel. He

has not shown that the bankruptcy court actually accepted Brown's

representation of the value of the Notes.

           The party proposing an application of judicial estoppel

must show that the relevant court actually accepted the other

party's earlier representation.              See Gens v. Resolution Trust

Corp., 112 F.3d 569, 572 (1st Cir. 1997) ("Judicial estoppel is not

implicated unless the first forum accepted the legal or factual

assertion alleged to be at odds with the position advanced in the

current forum . . . ." (emphasis in original)).              "Acceptance" in

this   context   is   a   term   of   art.     In   order   to   satisfy   this

prerequisite, a party need not show that the earlier representation


                                      -16-
led to a favorable ruling on the merits of the proceeding in which

it was made, but must show that the court adopted and relied on the

represented position either in a preliminary matter or as part of

a final disposition. See, e.g., Pennycuff v. Fentress Cnty. Bd. of

Educ., 404 F.3d 447, 453 (6th Cir. 2005); Karaha Bodas Co. v.

Perusahaan Pertambangan Minyak Dan Gas Bumi Negara, 364 F.3d 274,

294 (5th Cir. 2004); see also Global NAPs, 603 F.3d at 90 (finding

that court accepted party's first representation by relying on it

in granting temporary restraining order); Alt. Sys. Concepts, 374

F.3d at 34 (explaining that because court relied on party's initial

position in denying motion to dismiss, party "derived a direct (if

temporary) benefit from its original position").

          The showing of judicial acceptance must be a strong one.

See SBT Holdings, LLC v. Town of Westminster, 547 F.3d 28, 37 & n.8

(1st Cir. 2008) (rejecting judicial estoppel argument because

record was unclear as to whether court accepted plaintiff's prior

position); cf. United States v. Pakala, 568 F.3d 47, 60 (1st Cir.

2009) (upholding judicial estoppel when it was "clearly obvious"

that the original trial court, in granting a motion, "necessarily

adopted" the position that the movant later sought to contradict);

United Nat'l Ins. Co. v. Spectrum Worldwide, Inc., 555 F.3d 772,

779 (9th Cir. 2009) (authorizing judicial estoppel when trial court

"clearly accepted and relied upon [the party's] assertions" when it

denied preliminary injunction).    The need for a strong showing


                               -17-
derives from the maxim that "[j]udicial estoppel is applied with

caution to avoid impinging on the truth-seeking function of the

court because the doctrine precludes a contradictory position

without examining the truth of either statement." Teledyne Indus.,

Inc. v. NLRB, 911 F.2d 1214, 1218 (6th Cir. 1990); accord Lowery v.

Stovall, 92 F.3d 219, 224 (4th Cir. 1996) ("The insistence upon a

court having accepted the party's prior inconsistent position

ensures that judicial estoppel is applied in the narrowest of

circumstances.").

             It follows that a proponent of judicial estoppel must

affirmatively show, by competent evidence or inescapable inference,

that   the    prior    court    adopted       or   relied   upon    the     previous

inconsistent assertion.         See United Steelworkers of Am. v. Ret.

Income Plan for Hourly-Rated Emps. of ASARCO, Inc., 512 F.3d 555,

563-64   (9th   Cir.    2008)      (finding    that   failure      to   demonstrate

judicial acceptance precludes application of estoppel where "the

district court never held" the notion urged by the party) (emphasis

in original); United States v. Levasseur, 846 F.2d 786, 794 (1st

Cir. 1988) (rejecting "illogical surmise" about what prior court

might have accepted as a basis for judicial estoppel).                    Perry has

not made the requisite showing here.

             There    are   only    two   possible     actions      taken    by   the

bankruptcy court that Brown's representation might have affected.

First, in Brown's bankruptcy proceeding, the court allowed him to


                                       -18-
retain the Notes after he stated the amount due and represented

that the Notes were uncollectible.          Second, in the CHI bankruptcy

(in which Brown intervened), the court lifted the automatic stay,

allowing Brown to foreclose on the Fenmore.            There is no evidence

that either action was premised on Brown's statements about the

amount owed on the Notes, and it is implausible to infer any such

nexus.

            We examine these two actions in reverse order. It defies

logic to deduce that the bankruptcy court granted Brown relief from

the automatic stay on the basis of the amount owed on the Notes.

A larger figure would not have supported keeping the stay in place

—   if   anything,   a   greater   amount   owed    would    have   created    an

additional incentive for the court to allow the foreclosure to

proceed post-haste.

            Similarly, it is utterly speculative to suggest that the

bankruptcy    court,     in   approving   Brown's   global    settlement      and

allowing him to retain the Notes, accepted each and every one of

his figures.    Generally speaking, settlement "neither requires nor

implies any judicial endorsement of either party's claims or

theories."    In re Bankvest Capital Corp., 375 F.3d 51, 60 (1st Cir.

2004) (quoting Bates v. Long Island R.R. Co., 997 F.2d 1028, 1038

(2d Cir. 1993)).         So viewed, an unexplained settlement does not

provide the prior success necessary for judicial estoppel.                    See

C & M Props., LLC v. Burbidge, 377 B.R. 677, 685 (D. Utah 2007)


                                     -19-
(noting that "[t]he the fact that [debtor] obtained confirmation of

its [plan] does not demonstrate that the bankruptcy court was

misled" and thus finding that second element of judicial estoppel

was not satisfied), vacated on other grounds by In re C & M Props.,

L.L.C., 563 F.3d 1156, 1168 (10th Cir. 2009).

          Perry surmises, but offers no semblance of proof, that a

bankruptcy     court      would      treat   uncollectible    notes      worth   over

$7,000,000     differently        than    uncollectible     notes   worth    roughly

$1,000,000.      It       is,   of    course,    possible   that,   in   particular

circumstances,        a    bankruptcy        court   might    indulge       in   such

differential treatment.              Here, however, the surmised inference is

simply not plausible.           By definition, an uncollectible note is an

uncollectible note (and, thus, worthless). In any event, either of

these figures pales in comparison to $134,105,736 — the sum of the

claims of Brown's creditors at the time of the settlement.                   In this

case, then, the variation in amount is a distinction that makes no

difference.4


     4
       We note that one court has treated settlements in ordinary
litigation and those arising in the context of bankruptcy
proceedings differently. Reynolds v. Comm'r, 861 F.2d 469, 473
(6th Cir. 1988) (explaining that bankruptcy may give rise to
greater judicial acceptance of the parties' positions because the
court there "is charged with an affirmative obligation to apprise
itself of the underlying facts and to make an independent judgment
as to whether the compromise is fair and equitable"). We need not
comment upon the correctness of this approach as Perry has offered
nothing more than speculation to suggest that the bankruptcy court
was motivated by the amount due on the Notes, rather than their
uncollectible status. Cf. id. at 473-74 (noting that the accepted
representation "was essential to the bankruptcy judge's approval of

                                          -20-
            For   what    it   may    be    worth,      Brown    himself   neither

explicitly nor implicitly contradicted his original representation

as to the amount due on the Notes.                He placed that figure at

$902,662 and later sold the Notes for a figure in the same ballpark

— $950,000.    These events do not support a suggestion that he was

attempting to defraud or mislead the bankruptcy court.                     This is

potentially important because judicial estoppel is not meant to be

a trap for the unwary and should be employed sparingly when "there

is no evidence of intent to manipulate or mislead the courts."

Ryan Operations G.P. v. Santiam-Midwest Lumber Co., 81 F.3d 355,

365 (3d Cir. 1996).

            To say more on this issue would be to paint the lily.

Conjecture,   without     more,      cannot   support      the    application    of

judicial estoppel.       See SBT Holdings, 547 F.3d at 37 & n.8.                Put

another way, remote possibilities are not enough. Consequently, we

hold that the district court committed legal error (and, thus,

abused its discretion) in judicially estopping the appellants,

based on a third party's earlier representation, from attempting to

prove that the amount due on the Notes was more than $1,853,282.

            In an effort to repair this hole in the fabric of their

argument,   Perry   and    CHI    urge     that   the    appellants    should    be

judicially estopped based on Yellin's prior representation.                     The




the parties' compromise") (emphasis supplied).

                                      -21-
district court rejected this alternative theory, Perry II, slip op.

at 10, and so do we.

              The salient facts are as follows.           In 1997, Perry, on

behalf of CHI, sued the appellants in a Massachusetts state court.

He moved for a preliminary injunction to prevent foreclosure on the

Fenmore.      As part of his opposition, Yellin filed an affidavit

indicating, in its background recitals, that the amount due on the

Notes was $1,900,000.          The state court denied Perry's motion.

Perry   did    not   appeal   the   denial,   and   the   court    subsequently

dismissed the case for want of prosecution.

              In the court below, Perry and CHI advanced an alternative

claim of judicial estoppel premised on Yellin's affidavit.                  The

district court did not bite, reasoning that the state court "took

no action in reliance on [the $1.9 million] figure" and "ultimately

dismissed the case for lack of prosecution."              Id.     Perry and CHI

challenge this holding.        Noting that the state court accepted the

filing of Yellin's affidavit and denied the preliminary injunction,

they say that no more was exigible to ground a subsequent claim of

judicial estoppel.      We do not agree.

              Based on the facts recounted above, the first element

needed for judicial estoppel is satisfied.                The representation

about the Notes' value, as expressed by the appellants in the

district court, is inconsistent with the earlier representation

that Yellin made in the state court.


                                      -22-
               Once   again,    however,   the    second    element   is    more

problematic.       There is absolutely no basis for believing that the

state court adopted or relied on the $1,900,000 figure contained in

Yellin's affidavit.        The absence of any evidence to that effect is

fatal.    See SBT Holdings, 547 F.3d at 37 & n.8; Levasseur, 846 F.2d

at 794.

               Perry and CHI suggest that the state court may have

relied    on    Yellin's    representation   in    denying   the   motion   for

preliminary injunction.         But this suggestion is woven entirely out

of gossamer strands of speculation and surmise.              In addition, the

suggestion       is   counterintuitive.      Perry    and    CHI   sought   the

preliminary injunction to prevent foreclosure on the Fenmore, and

the amount of the indebtedness had virtually nothing to do with the

question raised in that motion.              In other words, whether the

balance owed was $1,900,000 or $7,000,000 or some figure in between

had no apparent bearing on whether the foreclosure should (or

should not) be enjoined.           Cf. Ross-Simons of Warwick, Inc. v.

Baccarat, Inc., 102 F.3d 12, 15 (1st Cir. 1996) (listing factors

relevant to preliminary injunction inquiry).               There is simply no

plausible basis for supposing that Yellin's representation about

the amount due factored into the state court's decisional calculus.

                           B.   Equity of Redemption.

               Given our previous conclusion, see supra Part II(A), the

district court's accounting will have to be reworked.                 Once the


                                      -23-
amount due on the Notes is established and subtracted — after all,

the Notes were secured by first and second mortgages on the Fenmore

and, thus, give rise to a high-priority equitable lien on the

foreclosure proceeds — the question becomes how the court should

treat the $5,000,000 paid to settle the FDIC's claims against the

Yellin     Parties.      The    appellants     argue     that    this    payment

extinguished the third and fourth mortgages and, thus, should be

offset before calculating the equity of redemption.               The district

court made no such offset.         The appellants assign error to this

step in the progression.

            The calculation of an equitable accounting is, within

broad limits, committed to the district court's discretion.                 Tamko

Roofing Prods., Inc. v. Ideal Roofing Co., 282 F.3d 23, 39 (1st

Cir. 2002). Accordingly, "we will not disturb [such a calculation]

unless it rests on clearly erroneous findings of fact, incorrect

legal standards, or a meaningful error in judgment."               Id.; see In

re Blinds to Go Share Purchase Litig., 443 F.3d 1, 8 (1st Cir.

2006) ("Because the district court 'is in a considerably better

position    to   bring   the   scales   into   balance    than   an     appellate

tribunal,' we will not normally find an abuse of discretion unless,

upon whole-record review, we are convinced that the district court

committed a significant error in judgment." (quoting Rosario-Torres

v. Hernández-Colón, 889 F.2d 314, 323 (1st Cir. 1989) (en banc))).




                                    -24-
              As co-owners of the foreclosed Fenmore, Perry and Yellin

are jointly entitled to the equity of redemption.                     Stripped of

rhetorical      flourishes,     the    appellants'        contention    is    that

calculating this figure is a purely mechanical exercise, which

requires that payments made to extinguish liens on the property be

subtracted      before    the   co-owners     can     divide    the     remaining

foreclosure surplus.       Building on this foundation, the appellants

posit that the district court erred in refusing to offset the

$5,000,000 payment that they made to the FDIC because that payment

extinguished the third and fourth mortgages on the Fenmore.

              This argument has a patina of plausibility.             Under basic

principles of property law, the holder of the equity of redemption

does not have a property interest in foreclosure proceeds unless

and   until    all    outstanding     liens   on    the   property     have   been

extinguished.        See First Colonial Bank for Sav. v. Bergeron, 646

N.E.2d 758, 759 (Mass. App. Ct. 1995); see also Restatement (Third)

of Prop.: Mortgages § 7.4 (1997) ("When the foreclosure sale price

exceeds the amount of the mortgage obligation, the surplus is

applied to liens and other interests terminated by the foreclosure

in order of their priority and the remaining balance, if any, is

distributed to the holder of the equity of redemption."). A junior

lienholder has an equitable lien, transferred from the foreclosed

premises, that attaches to the foreclosure surplus.              See New Haven

Sav. Bank v. Follins, 431 F. Supp. 2d 183, 196 (D. Mass. 2006); see


                                      -25-
also Restatement (Third) of Prop.: Mortgages § 7.4, cmt. a (1997)

(explaining that the "surplus stands in the place of the foreclosed

real estate, and the liens and interests that previously attached

to the real estate now attach to the surplus").

          The   appellants   take   these   abecedarian   property   law

principles to mean that because they settled with the FDIC and

thereby extinguished the FDIC's equitable lien on the foreclosure

proceeds, the $5,000,000 settlement amount must come off the top

before the equity of redemption is calculated.     The district court

instead treated the $5,000,000 as a part of the distribution of the

appellants' share of the equity of redemption.      See Appendix.

          The appellants' construct reflects a kind of tunnel

vision.   It fails to take into consideration that the challenged

calculations are not entries on a closing sheet at a foreclosure

but, rather, are calculations made in the context of a judicial

accounting.     This matters because an accounting is not a rote

exercise in arithmetic.      To the contrary, it is an equitable

remedy, see Braunstein v. McCabe, 571 F.3d 108, 122 (1st Cir. 2009)

(citing Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 49 n.7

(1989)), and equitable remedies "are flexible tools to be applied

with the focus on fairness and justice." Demoulas v. Demoulas, 703

N.E.2d 1149, 1169 (Mass. 1998) (citing 1 Dan B. Dobbs, Law of

Remedies § 2.1(3), at 63 (2d ed. 1993)).




                                -26-
            The district court understood this distinction.                    It

refused to offset the $5,000,000 settlement before calculating the

equity of redemption.          The court based this determination on a

finding that the primary purpose of the settlement was not to

extinguish    the   FDIC's     lien,   but    to    release   the   Yellins   from

personal liability on a wide range of loans (many of which were

completely unrelated to the Fenmore).               See Perry III, slip op. at

1.    In effect, Yellin used money that otherwise would have had to

be shared with Perry to defray his personal obligations, leaving

Perry to settle separately with the FDIC using his own resources.

See supra note 1.          In the district court's words, Yellin "ha[d]

Blum conduct the Fenmore foreclosure sale and hand over the first

$5 million in proceeds to the FDIC" to satisfy Yellin's personal

obligations.    See Perry III, slip op. at 1.            The court found that

arrangement    to     be    "the   product     of    precisely      the   improper

relationship    and    underhanded     dealings"      that    characterized   the

appellants' course of conduct.          Id.; see also Perry I, slip op. at

13.

            This finding is eminently supportable.               The only reason

why Yellin was able to use foreclosure proceeds to fund his

personal settlement was because of his relationship with Blum, who,

as a straw for Yellin, held the senior mortgages on the Fenmore.

            In performing an equitable accounting, the district court

is not a mere scrivener, charged with carrying out a ministerial


                                       -27-
task. Instead, the court is charged with tempering arithmetic with

equity, or, as we phrased it in Rosario-Torres, 889 F.2d at 323,

"bring[ing] the scales into balance."           In this context, we think

that the district court acted within the sphere of its discretion

in preventing Yellin from unjustly enriching himself, to the

detriment of his quondam partner, by what the district court

warrantably found were underhanded dealings.            See 1 Dobbs, supra,

§   4.3(5),    at   610   (explaining   that   an   accounting   "forces   the

fiduciary defendant to disgorge gains received from improper use of

the plaintiff's property or entitlements").            Accordingly, we hold

that the district court neither erred nor abused its discretion in

refusing to subtract the $5,000,000 payment before calculating the

equity of redemption.

                                C.   Joinder.

              The Yellins claim that the district court violated the

Due Process Clause by joining them as reach-and-apply defendants

after the trial had ended.        A few additional facts are needed to

bring the claim into perspective.

              When the FDIC originally filed a claim in the underlying

litigation, it named the Yellins, among others, as defendants. But

following the settlement of the FDIC's claims against them, the

Yellins were dropped from the suit on June 10, 2002.                Two days

later, Perry brought Blum, as trustee of Moorings Nominee Trust,

back into the case by filing a cross-claim against him.           The cross-


                                     -28-
claim did not specifically name the Yellins, but it did name "John

Doe" as a reach-and-apply defendant.            "John Doe" was described as

"a person or persons, or an entity or entities, to whom funds

generated    by   the   foreclosure    sale     of   the   Fenmore    have   been

transferred by Blum, for less than full consideration."

             Almost two years later, Perry sought to amend his cross-

claim to add the Yellins as reach-and-apply defendants.                       The

district court referred this motion to a magistrate judge.                   See

Fed. R. Civ. P. 72(a).      On November 29, 2004, the magistrate judge

denied it.    Perry moved unsuccessfully for reconsideration but did

not appeal that denial to the district judge.

             The cross-claim was tried to the court in early 2005.

During trial, Perry again moved to join the Yellins as reach-and-

apply defendants.       The district court suggested that Perry file a

written motion to conform the pleadings to the proof.                See Fed. R.

Civ. P. 15(b).      Perry filed such a motion on June 24, 2005.              The

district court took the entire case (including the motion) under

advisement for over three years.

             On   October   31,   2008,   the   court      issued   its   written

decision.     In that rescript, the court granted the motion to join

the Yellins as reach-and-apply defendants.              Perry I, slip op. at

36.   The Yellins sought reconsideration, to no avail.                Perry II,

slip op. at 19.




                                      -29-
          The district court premised its order on Federal Rule of

Civil Procedure 21.5    We review an order joining a party under Rule

21 for abuse of discretion.    See Cornelius v. Hogan, 663 F.2d 330,

335 (1st Cir. 1981).    Within that rubric, embedded legal questions

are reviewed de novo.    See United States v. Platte, 577 F.3d 387,

391 (1st Cir. 2009).

          Rule 21 stated that "[p]arties may be dropped or added by

order of the court on motion of any party or of its own initiative

at any stage of the action and on such terms as are just."

Although the rule permits joinder at any stage of the proceedings,

joinder in a particular case must comport with the strictures of

due process.     Moore v. Knowles, 482 F.2d 1069, 1075 (5th Cir.

1973).   These strictures include notice and an opportunity to be

heard at a meaningful time and in a meaningful manner.     Eakins v.

Reed, 710 F.2d 184, 186-87 (4th Cir. 1983).

          For obvious reasons, joinder of a defendant after trial

is disfavored.   See, e.g., Cabrera v. Mun'y of Bayamon, 622 F.2d 4,

6 (1st Cir. 1980).     In such a situation, concerns about possible

prejudice to the late-joined party loom large.        7 Charles Alan

Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and

Procedure § 1688.1, at 510 (3d ed. 2001).



     5
       Rule 21 was amended in 2007, but the changes were merely
stylistic.   See Fed. R. Civ. P. 21 advisory committee's note.
Consequently, we refer here to the rule as it stood at the time of
the trial.

                                 -30-
          The    case   at   bar,   however,   is   highly    idiosyncratic.

First, the Yellins originally were parties to the action.            Second,

they were on notice of Perry's desire to add them as defendants by

reason of both his pretrial motion to do so and his mid-trial

motion to that effect.       Third, in his original cross-claim, Perry

named a "John Doe" reach-and-apply defendant, describing "John Doe"

in terms that fit the Yellins to a "T."         These circumstances gave

the district court an adequate basis for finding that the Yellins

had notice sufficient to satisfy the requirements of due process.

See Insituform Techs., Inc. v. CAT Contracting, Inc., 385 F.3d

1360, 1375 (Fed. Cir. 2004) (rejecting defendant's due process

argument against post-trial joinder because plaintiffs had made

pretrial attempts to join him).

          Similarly, the record permits a conclusion that the

Yellins had a meaningful opportunity to be heard.            Blum was a party

all along, and the district court supportably found that he was a

stand-in for the Yellins.       Perry I, slip op. at 11-12.         As such,

Blum had substantially the same interests as the Yellins. Blum was

their proxy and, as befits a proxy, he and the Yellins shared the

same counsel.6




     6
       This is not a situation in which, as in Eakins, 710 F.2d at
187, a late-joined party and a timely-joined party shared the same
counsel but had interests that were not "sufficiently identical."
In this instance, the identity of interests is palpable.

                                    -31-
               To add to the picture, the Yellins testified extensively

at the trial.           Consequently, their narrative accounts of the

central issues in the case were before the court.            That is an

important consideration in the due process equation.        See Fromson

v. Citiplate, Inc., 886 F.2d 1300, 1304 (Fed. Cir. 1989) (upholding

post-judgment joinder where interests of late-joined defendant and

timely-joined defendants were "virtually complete").

               To cinch matters, a party who claims to be aggrieved by

a violation of procedural due process must show prejudice.          See

Amouri v. Holder, 572 F.3d 29, 36 (1st Cir. 2009); United States v.

Saccoccia, 58 F.3d 754, 770-71 (1st Cir. 1995).       The Yellins have

not identified any evidence which, had they been joined earlier,

they could have introduced; nor have they made any other showing of

actual prejudice.7

III.       CONCLUSION

               This is a complicated, hard-fought case.   Both sides are

represented by highly proficient counsel, but objective appraisals

of the facts are to some extent held hostage to the parties'

rancor.      The district judge has demonstrated patience and skill in

sorting out what really happened and navigating through a legal



       7
       In all events, any possible prejudice can be avoided here.
If the Yellins have any evidence that bears on the accounting, the
present posture of this case affords the district court the
flexibility, when the case is returned to it, to reopen the case
and provide the Yellins with an opportunity to supplement the
record.

                                    -32-
minefield.    We are reluctant to prolong a case that already has

lingered for a decade, but there is no other principled course

available to us.   Perhaps, given the passage of time and the large

sums already spent on litigation, the parties have reached a point

at which a negotiated resolution of their remaining differences is

possible.    One can only hope.

            We need go no further. For the reasons elucidated above,

we conclude that the district court erred as a matter of law in

invoking the doctrine of judicial estoppel to limit the appellants'

proof as to the amount owed on the Notes.      Thus, we reverse that

ruling.   In turn, this holding requires vacation of the judgment.

The district court will have to determine the actual amount due on

the Notes at the relevant time and rework the accounting.    We take

no view as to the amount due on the Notes; although the appellants

assert that the amount due is $7,494,435, Perry and CHI fiercely

dispute the basis for that figure.

            The other rulings appealed from are affirmed, and further

proceedings in the district court shall be conducted consistent

with this opinion.     On remand, the district court may take such

further evidence as it deems appropriate.



Affirmed in part, reversed in part, vacated, and remanded.       All

parties shall bear their own costs.




                                  -33-
                            Appendix

         The district court entered a judgment in favor of Perry
in the amount of $4,347,126.     This amount was calculated as
follows:

Combined Proceeds from the Fenmore:
Proceeds from foreclosure sale              $9,450,000
Net rents collected on the Fenmore          $1,660,797
Net combined proceeds                      $11,110,797

Credits, Adjustments, and Amount Due on Notes:
Costs of foreclosure                           $154,440
Amount due on Notes as of foreclosure date $2,262,105
Total credits and adjustments               $2,416,545

Equity of Redemption:
Net combined proceeds                      $11,110,797
Less credits and adjustments               -$2,416,545
Fenmore's equity of redemption              $8,694,252
Perry's 50% share                           $4,347,126




                                 -34-