Schultz v. Rhode Island Hospital Trust National Bank, N.A.

United States Court of Appeals
For the First Circuit

No. 95-1997
PETER M. SCHULTZ AND PAMELA A. SCHULTZ,

Plaintiffs, Appellants,

v.

RHODE ISLAND HOSPITAL TRUST
NATIONAL BANK, N.A., ET AL.,

Defendants, Appellees.

No. 95-2113
BOWDOIN CONSTRUCTION CORP.,

Plaintiff, Appellant,

v.

RHODE ISLAND HOSPITAL TRUST
NATIONAL BANK, N.A., ET AL.,

Defendants, Appellees.

No. 95-2172
ALLENBY ENTERPRISES, INC., ET AL.,

Plaintiffs, Appellants,

v.

RHODE ISLAND HOSPITAL TRUST
NATIONAL BANK, N.A., ET AL.,

Defendants, Appellees.

APPEALS FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Joseph L. Tauro, U.S. District Judge]

[Hon. Robert E. Keeton, U.S. District Judge]

[Hon. Patti B. Saris, U.S. District Judge]

Before

Torruella, Chief Judge,

Campbell, Senior Circuit Judge,

and Lynch, Circuit Judge.

Edwin A. McCabe, with whom McCabe Brown Sutherland, Joseph P.

Davis III, and Lane, Altman & Owens were on brief, for plaintiffs-

appellants.

Joseph L. Kociubes, with whom Peter Alley, Denise Jefferson

Casper, and Bingham, Dana & Gould were on brief, for Rhode Island

Hospital Trust National Bank.

Allen N. David, Elizabeth Z. Holmes, and Peabody & Arnold, on

brief for Federal Deposit Insurance Corp. as receiver of Coolidge Bank
and Trust Co.

Robert D. Cultice, Louis J. Scerra, Jr., and Goldstein & Manello,

P.C., on brief for Chrysler First Business Credit Corp.

August 22, 1996

LYNCH, Circuit Judge. These three actions,

consolidated for appeal, arise out of a failed real estate

venture involving the purchase and redevelopment of the Sea

Crest Hotel in Falmouth, Massachusetts ("the Sea Crest"). In

a federally registered public offering, investors purchased

condominium unit deeds and "pooled income" interests in the

Sea Crest project. One of the offering's features, as

disclosed in the prospectus, was that the offering would be

terminated and all investor deposits refunded if the

aggregate amount of investments sold did not reach a minimum

subscription level ("MSL") by a set deadline. Plaintiffs

asserted that Rhode Island Hospital Trust National Bank

("RIHT"), the lender that financed the developer's purchase

of the Hotel and served as the escrow agent responsible for

holding investor deposits, was liable to them for purportedly

failing to determine that the MSL requirement had not in fact

been satisfied by the requisite date. The district courts

concluded, as a matter of law, that the plaintiffs' claims

against RIHT for fraud, negligent misrepresentation, breach

of contract, and violations of the Racketeer Influenced and

Corrupt Organizations Act ("RICO"), 18 U.S.C. 1961 et

seq., were all deficient. We agree that plaintiffs have

established no legal basis for holding RIHT liable for their

losses. Accordingly, we affirm.

-3-
3

I.

Factual Background

In the mid-1980's, Eugene Marchand developed a plan to

purchase and renovate the Sea Crest Resort and Conference

Center, a large beach resort on Cape Cod. Marchand sought to

revitalize the hotel as a convention-oriented facility. The

plan involved converting the Sea Crest into a condominium,

and then selling the individual condominium units to

investors, together with interests in the pool of income to

be generated from the resort. The condominium units and

these "pooled income" interests were to be sold as registered

securities in a public offering. The issuer of the

securities would be Marchand's development company, Laurel-

Sea Crest Realty Sales Corp. ("Laurel"), of which Marchand

was the sole shareholder. Laurel's purchase of the Sea

Crest, for $19.4 million, would be financed through sales to

investors and a bank loan from RIHT. With projected expenses

of $40.5 million and total expected gross proceeds from the

offering projected at $45 million, Laurel stood to make a net

profit of $4.5 million.

On September 12, 1986, Laurel filed a registration

statement and prospectus with the SEC, describing the

proposed offering of 266 "condominium hotel interests." The

prospectus stated that the offering would be conditioned upon

a minimum level of investor participation:

-4-
4

Unless 60 Hotel Interests are subscribed for by
qualified investors ("Minimum Subscription
Level") within 60 days of the effective date of
the Registration Statement of which this
Prospectus is a part, but in no event later than
December 31, 1986, this offering will be
withdrawn and all funds will be returned
promptly to subscribers.

The prospectus also stated that every investor would be

required to "pay a down payment of 10% of the purchase price

of the Hotel Interest (the 'Escrow Deposit')," which would be

"deposited . . . in a segregated, federally insured, interest

bearing account . . . at the Rhode Island Hospital Trust

National Bank . . . on behalf of Investor." The prospectus

named RIHT as escrow agent for the offering.

As Laurel waited for the registration statement to be

declared effective by the SEC, it secured the financing it

needed to purchase the Sea Crest. On November 14, 1986, RIHT

issued a commitment letter to Laurel approving a fourteen

million dollar first mortgage construction loan to be used by

Laurel in acquiring and renovating the Sea Crest facility.

RIHT's commitment, like the offering, was conditioned upon

the "presale" of a minimum number of Sea Crest interests

prior to December 29, 1986, the expiration date of RIHT's

commitment letter.1

1. RIHT's presale requirement was, in fact, more stringent
than the MSL requirement. The commitment letter specified
that "[p]rior to closing, a minimum of 80 units must be under
written agreement of purchase-sale with a 10% non-refundable
deposits [sic]," and that those 80 units must account for "no
less than $13.6 million" in gross proceeds.

-5-
5

As of the date that RIHT issued its commitment letter

to Laurel, however, the SEC had yet to approve Laurel's

registration statement. In fact, the registration statement

was not declared effective by the SEC until December 12,

1986, leaving just two and a half weeks for Laurel to achieve

the MSL set in the prospectus and the minimum number of

presales required by RIHT. It was clear that Laurel needed

more time. Laurel sought to restructure the offering and

obtain a new commitment agreement from RIHT, with a new

timetable for meeting the minimum presale requirement. RIHT

agreed to renegotiate.

As Laurel and RIHT neared agreement on a new loan

commitment, Laurel filed, on March 2, 1987, a post-effective

amendment to its original registration statement. The

amendment established a new deadline for Laurel to meet the

MSL requirement. It also restructured the requirement to

condition the offering on a minimum dollar amount of

aggregate sales, rather than a minimum number of unit sales.

The amended prospectus explained:

Unless Hotel Interests of $6,000,000 in
aggregate purchase price are subscribed for by
qualified investors ("Minimum Subscription
Level") within 120 days of the effective date[2]
of the Registration Statement of which this
Prospectus is a part, this offering will be

2. The 120th day after December 12, 1986, the effective date
of the registration statement fell on April 11, 1987, a
Saturday.

-6-
6

withdrawn and all funds will be returned
promptly to subscribers.

The amended prospectus left unchanged the original

prospectus's representation that each investor would be

required to tender a down payment equal to ten percent of the

selling price of the unit to be purchased, which would be

deposited in an escrow account held by RIHT.

RIHT issued a new commitment letter to Laurel on March

30, 1987. This time, RIHT agreed to give Laurel an 18.3

million dollar loan, conditioned upon the presale of only 40

units with a minimum aggregate selling price of $6 million,

each presale requiring a ten percent nonrefundable investor

deposit. Laurel was required to satisfy the new 40-unit

presale condition by no later than April 10, 1987, the

expiration date of the new commitment letter.

Apart from RIHT's lending relationship with Laurel,

the bank's only role in the Sea Crest offering was to act as

escrow agent. RIHT did not sign the registration statement.

Nor did it participate in promoting the offering or in

selling or soliciting subscriptions. RIHT's duties as escrow

agent were to be governed by a written escrow agreement

between Laurel and RIHT, addressed to the investor. A copy

of the agreement, annexed as an exhibit to Laurel's

registration statement, was to be provided to each

subscribing investor. As will be discussed, there is some

dispute as to the particular form of agreement by whose terms

-7-
7

RIHT agreed to be bound. It is clear, however, that RIHT

assumed at most a duty to hold investors' deposits in escrow

until "[Laurel] shall verify to the Bank that . . .

$6,000,000 in aggregate purchase price for Hotel Interests

have been subscribed for and received as required under the

Registration Statement . . . ."

As the offering proceeded, Laurel, through its selling

agent (Broad Reach Capital), collected purchase and sale

agreements for individual Sea Crest condominium units ("unit

sale agreements"). Notwithstanding the prospectus's

representations that investors would be required to tender a

ten percent non-refundable "escrow deposit" upon subscribing

to the offering, Laurel and Broad Reach Capital accepted

promissory notes for ten percent of the purchase price -- in

lieu of cash deposits -- from almost half of the investors

who signed unit sale agreements prior to the MSL deadline.

Such cash deposits as were tendered by the investors were

placed in an escrow account at RIHT. But as the deadline for

meeting the MSL approached, only a total of some $309,000 had

been deposited into the RIHT escrow account.

RIHT and Laurel conducted their loan closing on April

9, 1987, just prior to the expiration date of the March

commitment letter. At the closing, RIHT was provided with

copies of the unit sale agreements that had been executed.

An officer of the bank counted the sale agreements to verify

-8-
8

that there had been at least 40 units sold (as required in

RIHT's loan commitment letter) and tallied the aggregate

amount of sales to verify that the six million dollar MSL

requirement had been met (as set forth in the agreement and

the prospectus). No one at RIHT undertook to verify whether

there was a ten percent deposit in escrow for each unit

subscription. Having satisfied itself that at least 40

subscriptions and $6 million in aggregate sales had been

achieved, RIHT proceeded to close its loan with Laurel and

thereafter released the escrowed investor deposits to Laurel.

Laurel purchased the Sea Crest and separately closed on its

sales of individual condominium units to investors.

In May 1987, Laurel hired Bowdoin Construction Corp.

("Bowdoin") to serve as the general contractor for the

renovation of the Sea Crest. Pursuant to a letter of intent

from Laurel, Bowdoin began construction work and arranged the

necessary subcontracts. Based on a decision by Marchand,

Bowdoin continued its construction work through the 1987

summer season, causing a fall-off in revenues to the resort

and putting a wrinkle into Laurel's ongoing sales efforts.

By late September 1987, Laurel was under severe

financial strain. It had stopped making payments to Bowdoin,

even though Bowdoin continued construction. On October 1,

RIHT downgraded the credit status of its loan to Laurel. The

stock market crash later that month only worsened matters,

-9-
9

and in November 1987, Laurel defaulted on the RIHT loan.

Laurel and RIHT discussed restructuring or refinancing the

loan. Bowdoin inquired about the status of Laurel's funding.

After allegedly being assured that it would be paid through

new financing from RIHT, Bowdoin continued with construction.

In the meantime, restructuring negotiations between Laurel

and RIHT had ended unsuccessfully.

By January 1988, when Bowdoin finally ceased

construction, it had incurred unreimbursed expenses of over

$1 million. A month later, Laurel filed a Form 8-K with the

SEC disclosing that the Sea Crest offering would be

indefinitely suspended, with only 58 of the total 266

condominium units having been sold. Soon afterward, a number

of lawsuits were filed. In April 1988, RIHT sued Laurel to

collect on its loan. In July 1988, Bowdoin filed an action

for breach of contract and enforcement of a mechanic's lien

in state court, but then voluntarily dismissed the action

based, allegedly, on Laurel's representation that doing so

was Bowdoin's best chance of recovering any of its unpaid

debts.3 Ultimately, Bowdoin collected only a fraction of the

amount owed to it by Laurel. Laurel, RIHT, and others were

3. After Bowdoin dropped the state court lawsuit and
discharged the lien, RIHT sold its interest in the Sea Crest
loan, at a $5.7 million loss, to Coolidge Bank (who had to
that point owned a participation interest in the loan).

-10-
10

named in suits filed by investors, as well as in a newly

instigated action by Bowdoin.

II.

Procedural Background

A. District Court Proceedings

Three separate cases have been consolidated for

purposes of this appeal. Two of the cases, Schultz v. RIHT

and Allenby Enterprises, Inc. v. RIHT, are brought by

investors in the Sea Crest offering.4 The third case,

Bowdoin Constr. Corp. v. RIHT, is brought by Bowdoin. The

Schultz and Allenby plaintiffs asserted claims against

Laurel, RIHT and several others for alleged violations of the

federal securities laws and civil RICO, and for common law

fraud, negligent misrepresentation, breach of contract, and

breach of the covenant of good faith and fair dealing. The

Bowdoin complaint asserted claims against Laurel, RIHT, and

others for violations of civil RICO, breach of contract, and

breach of the covenant of good faith and fair dealing.

In October 1993, before the Schultz action was

scheduled to go to trial, the plaintiffs in all three actions

4. The plaintiffs in the Schultz action purchased a total of

five condominium units in April 1987 (prior to the MSL
deadline), at an aggregate purchase price of approximately $1
million. There are 38 plaintiffs in the Allenby action.

Collectively, they purchased 33 condominium units at an
aggregate purchase price of some $5 million. Approximately
$1.5 million of the Allenby plaintiffs' purchases were made

after the MSL deadline (April 10, 1987) had passed.

-11-
11

reached a settlement agreement with Laurel, Marchand, and

certain other affiliated parties, and dismissed all claims

against them, with prejudice. In exchange, the plaintiffs

received a promise from the settling defendants to waive the

attorney-client privilege and to provide interviews and trial

testimony as requested by the plaintiffs. No money changed

hands.

The Schultz action proceeded to trial against RIHT and

the other remaining defendant (a bank that had provided

financing to some of the investors) in January 1994, before

Chief Judge Tauro. The plaintiffs presented twelve days of

testimony, including the testimony of Eugene Marchand. At

the end of the plaintiffs' case, the defendants moved for

judgment as a matter of law. In its memorandum of decision,

the district court concluded that Central Bank v. First

Interstate Bank, 511 U.S. 164 (1994), required the dismissal

of the plaintiffs' claims for aiding and abetting securities

fraud under Section 10(b) of the Securities Exchange Act of

1934. The court also concluded that the plaintiffs had

failed to present adequate evidence on any of their common

law claims or their RICO claim, and granted the motion for

judgment as a matter of law.

Thereafter, Judges Keeton and Saris granted summary

judgment motions filed by RIHT in the Allenby and Bowdoin

actions, respectively. In deciding the Allenby motion, Judge

-12-
12

Keeton, discerning no material difference between the issues

in Allenby and Schultz, followed Judge Tauro's decision,

based both on an independent assessment of the case and as a

matter of stare decisis. In Bowdoin, in which the plaintiff

asserted RICO violations predicated upon allegations of

aiding and abetting securities fraud, Judge Saris entered

summary judgment in favor of RIHT, on the dual grounds that

such a claim could not be viable after Central Bank, and that

plaintiffs had, in any event, failed to adduce sufficient

evidence of a "pattern" of racketeering activity.

B. Posture on Appeal

The parties informed us at oral argument that the only

remaining defendant in all three of these cases, at least for

purposes of this appeal, is RIHT.5 We limit our review,

therefore, to those claims seeking to hold RIHT responsible

for the plaintiffs' alleged injuries.

In each of the three cases, we review de novo the

district court's entry of judgment as a matter of law.

Because the appeals largely raise the same dispositive issues

(albeit on somewhat different records), we distinguish them

only as necessary. We look to whether, viewing the record in

each case in the light most favorable to the plaintiffs, any

5. Plaintiffs' counsel stated at oral argument that,
although one other party nominally remains in the case,
plaintiffs would be content to have this court's decision
turn solely upon a determination of the merits of the claims
against RIHT.

-13-
13

reasonable jury could find in the plaintiffs' favor. See

Fed. R. Civ. P. 50(a) (Schultz); Fed. R. Civ. P. 56(c)

(Allenby; Bowdoin). Having assessed the merits of each of

the plaintiffs' theories of liability under this standard of

review, we now affirm.6

III.

Breach of Contract

RIHT's only relationship with the investor

plaintiffs arose out of the bank's role as escrow agent in

the Sea Crest offering. The Schultz and Allenby plaintiffs

assert that RIHT failed in that capacity, acting in breach of

the terms of the written escrow arrangement, in accordance

with which RIHT agreed to hold the deposits to be tendered by

investors. More specifically, the plaintiffs contend that

RIHT violated the terms of the escrow agreement when, on

April 9, 1987, it released all escrowed funds to Laurel, even

6. RIHT broadly argues, as a basis for affirmance
independent of the underlying merits of these actions, that
the plaintiffs' claims in all three cases are barred as a
result of their settlement with, and prejudicial dismissal of
their claims against, the Laurel defendants. RIHT further
contends that the judgment entered by the district court in
Schultz, if affirmed, constitutes res judicata in relation to

the plaintiffs' claims in the Allenby and Bowdoin actions,

and that the latter two actions are barred on a theory of
non-party claim preclusion. See Gonzalez v. Banco Central

Corp., 27 F.3d 751, 755 (1st Cir. 1994); see also Becherer v.

Merrill Lynch, Pierce, Fenner & Smith, Inc., 43 F.3d 1054,

1069-70 (6th Cir.), cert. denied, 116 S. Ct. 296 (1995). We

decline the invitation to venture into this complex and
unsettled area of the law, and rest our affirmance on the
merits of the three cases before us.

-14-
14

though, allegedly, the offering's MSL requirement had not

been satisfied.7

There is a threshold dispute as to the particular

escrow agreement that governs. Plaintiffs contend that RIHT

was in breach of the terms of an agreement referred to by the

parties as the "long-form" escrow. RIHT replies that it was

bound only by the terms of the so-called "short-form" escrow,

but argues, in the alternative, that even if it was bound by

the long-form escrow, the record establishes that no breach

occurred.

The short-form escrow agreement was attached as an

exhibit to the registration statement that Laurel filed with

the SEC in September 1986, and had been signed by RIHT in

November 1986. The short-form provided, in pertinent part:

TO PROSPECTIVE PURCHASERS OF HOTEL INTERESTS IN
SEA CREST CONDOMINIUM

Rhode Island Hospital Trust National Bank
(the "Bank") . . . having been requested to act

7. The district court in the Schultz action reasoned that

only those investors whose funds were actually deposited into
the escrow account had standing to challenge RIHT's
compliance with the escrow agreement. The record shows that
the two plaintiffs in the Schultz action did not pay a ten

percent cash down payment, instead signing a promissory note
to Laurel for that amount. Most of the plaintiffs in the
Allenby case, on the other hand, did pay a ten percent

deposit, but a number of the units -- representing about
$975,000 in aggregate sales -- were sold without a cash
deposit having been tendered. Furthermore, some of the
Allenby plaintiffs purchased their units after the MSL

deadline had passed. While we find the district court's
point to be forceful, we need not rely on it, given our
disposition of the merits of the issue.

-15-
15

as escrow agent ("Escrow Agent") for deposits to
be made by prospective purchasers ("Buyer") of
Hotel Interests in the above-referenced
Condominium from Laurel-Sea Crest Realty Sales
Corp. ("Seller") . . . does hereby accept such
request and agrees to hold deposits made payable
to the Sea Crest Condominium Escrow Account, and
received by it, upon the following terms and
conditions to which Buyer and Seller agree to be
bound by executing the Unit Sale Agreement
("Agreement") for Buyer's Hotel Interest, to
which acopy of this escrowletter will be annexed.

1. The Bank agrees to maintain such deposit
(the "Deposit") at its bank for the benefit of
Buyer and Seller . . . .

2. In the event the [Unit Sale] Agreement
is consummated, as evidenced by Buyer's
acceptance of a deed to the Hotel Unit, or by
written statement to that effect executed by or
on behalf of Buyer and Seller, Escrow Agent
shall pay over the Deposit to Seller, and shall
pay such interest as may have accrued thereon,
to Buyer. . . .

The long-form escrow agreement was filed with the SEC and

signed by RIHT at some later time, the precise date being in

dispute. The first paragraph of the long-form agreement was

the same as that in the short-form, but the body was

substantially different. The long-form agreement provided,

in relevant part:

1. The Bank agrees to maintain such deposit
(the "Deposit") at its bank for the benefit of
Buyer and Seller . . . . The Deposit shall be
held by the Bank until the Seller shall verify
to the Bank that (a) $6,000,000 in aggregate
purchase price for Hotel Interests have been
subscribed for and received as required under
the Registration Statement (the "Minimum
Subscription Level") and thereafter disbursed
. . . or (b) such Minimum Subscription Level has
not been achieved within 120 days of the
effective date of the Registration Statement

-16-
16

with the Securities and Exchange Commission. In
the event the Minimum Subscription Level is not
achieved within such 120 day period, all
deposits and interest accrued thereon shall be
promptly returned to Buyer.

2. In the event the Minimum Subscription
Level is achieved and the [Unit Sale] Agreement
is consummated, as evidenced by Buyer's
acceptance of a deed to the Hotel Unit, or by
written statement to that effect executed by or
on behalf of Buyer and Seller, Escrow Agent
shall pay over the Deposit to Seller, and shall
pay such interest as may have accrued thereon,
to Buyer. . . .

Both the long- and short-form escrow agreements ended with

the following clauses:

8. Escrow Agent assumes no obligations or
responsibility hereunder other than to make
delivery of the Deposit, and any earnings
thereon, as herein provided. . . .

It is understood and agreed that a copy of
this instrument will be annexed as an exhibit to
the [Unit Sale] Agreement. Buyer shall be
entitled to rely upon this escrow agreement,
with the same force and effect as if the Bank
had contracted directly with Buyer. . . .

The crucial difference between the two agreements lies

in the description of the conditions that were to trigger

RIHT's duty to release any escrowed funds to Laurel. The

long-form agreement linked RIHT's duty to release funds from

escrow upon the meeting of the MSL requirement; the short-

form agreement did not.

There is no dispute that RIHT at some point signed

both the short- and long-form agreements. The question is

when. The plaintiffs argue that RIHT became bound by the

-17-
17

long-form agreement before the April 1987 MSL deadline, and

that RIHT therefore had a duty of "verif[ication]" with

respect to the satisfaction of the MSL requirement before

releasing the funds in escrow. RIHT, on the other hand,

concedes that it signed the long-form agreement at some

point, but not before June 1987. Thus, RIHT asserts that, as

of April 1987, it was bound only by the short-form agreement,

which makes no mention of the MSL requirement.8 Even

accepting the plaintiffs' rendition of the record, however,

we conclude that no rational trier of fact could find that

RIHT committed a breach.

We look first to the express terms of the long-form

escrow agreement.9 Under that agreement, RIHT was required

to "hold deposits made payable to the Sea Crest Condominium

Escrow Account, and received by it" until "[Laurel] shall

verify to the Bank that (a) $6,000,000 in aggregate purchase

price for Hotel Interests have been subscribed for and

8. On the one hand, RIHT has provided an unrebutted
attestation that the only escrow agreement on record with the
SEC as of April 1987 was the short-form agreement. On the
other hand, there is some evidence (albeit circumstantial) to
suggest that RIHT had agreed to be bound by the long-form
agreement prior to April 1987. For example, a copy of the
long-form agreement (lacking RIHT's signature) was attached
to a letter from Marchand's attorney to RIHT dated March 16,
1987, in which the attorney proposed to RIHT a particular
procedure for dealing with interest accruing to the Sea Crest
escrow account.

9. The parties appear to agree that Massachusetts law
governs.

-18-
18

received as required under the Registration Statement (the

'Minimum Subscription Level') . . . ." This language

unambiguously limits RIHT's obligations as escrow agent to

holding deposits "received by it" until Laurel "verifi[ed]"

that $6 million in subscriptions had been received.

The record before us permits no genuine dispute that

RIHT satisfied its limited duties under the agreement. The

evidence is clear that RIHT did not release any funds that

had been deposited into the Sea Crest escrow account until it

had been provided by Laurel (prior to the MSL deadline) with

copies of executed unit sale agreements with an aggregate

face value in excess of $6 million. Plaintiffs concede that

there is uncontradicted testimony to this effect.

Plaintiffs' argument is that RIHT was required to do

more. They contend that RIHT should have refused to release

funds in escrow on April 9, 1987 on the grounds that: (i)

many of the unit sales counted toward the MSL were not backed

by ten percent cash deposits; (ii) Laurel had pledged seven

Sea Crest units as collateral for a "bridge" loan that it had

obtained from Wedgestone Realty Investors Trust, the proceeds

of which were applied to Laurel's purchase of the Sea Crest;

and (iii) the $6 million in unit sales that were applied to

the MSL computation had not actually been received by Laurel

before the MSL deadline.

-19-
19

The response is that the escrow agreement cannot

fairly be read to say that any one of these circumstances

created a bar to the disbursement of the escrowed funds.

Under the terms of its escrow agreement, RIHT's role in the

Sea Crest offering was a limited one, narrowly defined in a

written agreement. The escrow agreement did not impose on

RIHT a generalized duty to police the offering. To the

contrary, the agreement disclaimed any duty to the parties in

escrow "other than to make delivery of the [escrowed funds],

and any earnings thereon."

Thus, although the fact that Laurel sold a number of

Sea Crest units without taking a ten percent deposit from the

purchaser was arguably at odds with the prospectus, there is

no language in the escrow agreement conditioning the release

of any escrowed funds upon RIHT's having received deposits

totalling a full ten percent of the six million dollar

minimum sales amount. Similarly, there was nothing about

Laurel's "bridge" loan from Wedgestone that obligated RIHT,

under the escrow agreement, to determine that the MSL had not

been met, or that funds in escrow were otherwise required to

be returned to investors.

Finally, the plaintiffs' argument that $6 million in

actual funds had not been "received" prior to RIHT's closing

of escrow goes nowhere. To the extent that plaintiffs argue

that RIHT itself was required to be in receipt of the $6

-20-
20

million, the argument is inconsistent with the language of

the escrow agreement. To the extent that the agreement can

be read to require that the $6 million have been "received"

at all, the agreement plainly envisions that it would be

Laurel who would receive the funds, and who would thereafter

verify the same to RIHT.

In any event, RIHT's alleged failure to verify the

satisfaction of the purported "receipt" requirement does not

help the plaintiffs' case. The purported "receipt"

requirement is necessarily separate and distinct from the MSL

requirement, and satisfaction of the latter did not depend on

satisfaction of the former.10 The only circumstance

specified in the escrow agreement as requiring RIHT to return

escrow deposits to investors was the failure to attain the

MSL; Laurel's alleged non-receipt of $6 million in sales

proceeds did not require investor funds to be refunded or the

offering to be withdrawn. At most, the logic of plaintiffs'

theory is that RIHT released escrowed funds too early, and

10. The prospectus itself states that "[c]losings [on the
individual unit sale agreements] will commence once the
Minimum Subscription Level has been satisfied." This
language clearly contemplates that the MSL would be satisfied
before the actual consummation of the unit sale agreements.

And because the proceeds from the unit sale agreements that
were counted toward the MSL could not have been "received" by
Laurel until after the closings on those units, it follows

that the satisfaction of the MSL could not have depended upon
any such "receipt."

-21-
21

not that RIHT wrongfully failed to call for termination of

the offering.11

The question remains whether RIHT, in its capacity as

escrow agent, owed any duties to plaintiffs other than those

spelled out in the agreement. The Supreme Judicial Court of

Massachusetts has recently indicated that there is an absence

of discussion in Massachusetts law of whether an escrow

agent's duties may extend beyond satisfying the literal terms

of the escrow agreement. See In re Discipline of Two

Attorneys, 421 Mass. 619, 626 (1996) ("Massachusetts cases

have not discussed whether an escrow holder has any duty

beyond fulfilling the terms of the escrow.").12 But we find

no support for plaintiffs' broad arguments that RIHT, which

is not alleged to have been in a conflict of interest, was

required, in effect, to actively root out fraud of which it

had no knowledge and to police Laurel's conduct in the Sea

11. This is not a case involving the fabrication of "sham"
transactions designed to create the mere illusion that sales
had been generated. The apparent absence of some deposits
notwithstanding, there has been no suggestion that any of the
unit sale agreements that were counted toward the MSL in this
case were anything other than bona fide, binding contracts of
purchase and sale.

12. But cf. Schmid v. National Bank of Greece, 622 F. Supp.

704, 710 (D. Mass. 1985) ("The escrow agreement or
instructions constitute the full measure of the obligation
assumed by the escrow holder and owing to the parties."),
aff'd, 802 F.2d 439 (1st Cir. 1986) (tbl.).

-22-
22

Crest offering.13 See Two Attorneys, 421 Mass. at 626-27

(citing Maganas v. Northroup, 663 P.2d 565 (Ariz. 1983) (duty

to disclose known fraud); Collins v. Heitman, 284 S.W.2d 628

(Ark. 1955) (duty not to engage in self-dealing); Kitchen

Krafters, Inc. v. Eastside Bank of Mont., 789 P.2d 567 (Mont.

1990) (duty to disclose material facts relevant to escrow),

overruled on other grounds by Busta v. Columbus Hosp. Corp.,

916 P.2d 122 (Mont. 1996); American State Bank v. Adkins, 458

N.W.2d 807 (S.D. 1990) (duty to avoid self-dealing and

conflicts of interest)).

IV.

Other Common Law Claims

A. Breach of Covenant of Good Faith and Fair Dealing

The plaintiffs have not pointed to any record evidence

that would permit a finding that RIHT's release of the escrow

funds to Laurel was done other than under a good faith belief

that the MSL requirement had been satisfied, and that all of

13. Despite plaintiffs' contrary suggestion, SEC Rule 10b-9
does not warrant the importation into the escrow agreement of
a generalized duty to ensure that the offering as a whole
complied with the securities laws. Rule 10b-9 makes it a
violation of Section 10(b) of the Securities Exchange Act of
1934 for any person to make a representation, in connection
with an offering, that securities are being offered on any
"basis whereby all or part of the consideration paid for any
such security will be refunded to the purchaser if all or
some of the securities are not sold," unless the offering is
structured in a specified way. 17 C.F.R. 240.10b-9. Here,
however, there is no support for a finding that the Sea Crest
offering did not comply with Rule 10b-9 or, even more
basically, that RIHT ever made any "representation" covered
by the Rule.

-23-
23

the conditions for releasing the funds had been met. The

record supports no conclusion that RIHT acted with the sort

of dishonest purpose or conscious wrongdoing necessary for a

finding of bad faith or unfair dealing. See Anthony's Pier

Four, Inc. v. HBC Assoc., 411 Mass. 451, 471-72 (1991);

American Employers' Ins. Co. v. Horton, 35 Mass. App. Ct.

921, 923 (1993). The district court did not err in summarily

disposing of the plaintiffs' claims for the breach of the

covenant of good faith and fair dealing.

B. Fraud and Negligent Misrepresentation

Plaintiffs do not seriously argue that RIHT made any

affirmative material misrepresentations to them concerning

the Sea Crest offering. RIHT did not sign the registration

statement, and there is no evidence that RIHT had any

involvement in the preparation of the registration statement

or other offering materials for the Sea Crest project. Nor

did RIHT participate in Laurel's marketing or sales efforts.

The only communication between plaintiffs and RIHT appears to

have been through the escrow agreement, which was addressed

to investors and was to have been annexed to each unit sale

agreement.

Absent allegations of affirmative misrepresentations

or misstatements by RIHT, the question becomes whether RIHT

was guilty of any actionable omissions. Absent a duty to

speak, RIHT's silence could not have been fraudulent. See

-24-
24

Royal Business Group, Inc. v. Realist, Inc., 933 F.2d 1056,

1064 (1st Cir. 1991). RIHT's role in the offering was to

hold funds deposited with it until Laurel verified that

certain conditions had been met. Even assuming that RIHT, as

escrow agent, had a duty to disclose known fraud on the part

of Laurel, see, e.g., Maganas, 663 P.2d at 565 (cited in Two

Attorneys, 421 Mass. at 626-27), plaintiffs point to no

evidence that would show that RIHT was aware of fraudulent

conduct by Laurel or any other party involved in the

offering.

It is true that RIHT might have had reason to realize

that a number of investors had provided promissory notes in

lieu of ten percent cash deposits upon execution of their

unit sale agreements. But there is no reason why RIHT should

have suspected that this was the result of fraud. Indeed,

the plaintiffs do not allege that the promissory notes were

fraudulently made or procured; rather, they were facially

valid, enforceable instruments. Furthermore, Laurel's

acceptance of bona fide promissory notes, instead of

deposits, was not so obviously inconsistent with the

prospectus that RIHT should have concluded that a fraud was

being perpetrated. Finally, plaintiffs fail to argue that

any nondisclosure by RIHT on this issue would have affected

their decision to invest; nor do they explain how any such

nondisclosure could have been the cause of their losses.

-25-
25

See, e.g., Damon v. Sun Co., Inc., 87 F.3d 1467, 1471-72 (1st

Cir. 1996) (elements of fraud include proof of reliance and

causation).

C. Aiding and Abetting Fraud

The plaintiffs' common law claim of aiding and

abetting fraud fares no better. To establish a common law

cause of action for aiding and abetting, plaintiffs must at

least demonstrate some measure of "active participation" and

the knowing provision of substantial assistance by RIHT to

the principal's (here, Laurel's) alleged fraud. See Spinner

v. Nutt, 417 Mass. 549, 556 (1994). Plaintiffs point to

nothing in the record that would satisfy these basic

elements. Indeed, the evidence is to the contrary. In his

testimony in the Schultz trial, Marchand himself expressly

disavowed the existence of any sort of association between

Laureland RIHT otherthan anarm's lengthbusiness relationship.

V.

RICO Violations

In order to prevail on a RICO claim, a plaintiff must

prove, inter alia, that the defendant engaged in a "pattern

of racketeering activity." See 18 U.S.C. 1962. Here, RIHT

argues that the district court correctly granted judgment in

its favor on plaintiffs' RICO claims, because plaintiffs have

failed to establish that RIHT's conduct falls within any of

the categories of "racketeering activity" described in the

-26-
26

statute, see 18 U.S.C. 1961(1), and because plaintiffs have

failed to adduce evidence of the requisite "pattern" of

predicate acts necessary to trigger RICO liability, see 18

U.S.C. 1962(b)-(c).

A. Establishment of a Predicate Act

Plaintiffs argue that, on the record, a rational trier

of fact could find that RIHT engaged in three racketeering

predicates: (i) aiding and abetting securities fraud; (ii)

mail fraud; and (iii) wire fraud. The district court found

that "aiding and abetting securities fraud" cannot be a RICO

predicate, in light of the Supreme Court's decision in

Central Bank, 511 U.S. at 164 (1994) (no private right of

action for aiding and abetting under Section 10(b) of the

Exchange Act), and that the record supports no finding of

mail or wire fraud by RIHT.

We reserve to another day the issue of whether Central

Bank necessarily implies that aiding and abetting securities

fraud cannot be a "racketeering activity" within the meaning

of 1961(1). Even assuming that aiding and abetting

securities fraud can be a RICO predicate act, we find the

record support for such a claim to be lacking, as we do with

respect to the plaintiffs' allegations that RIHT engaged in

mail or wire fraud.

As for the aiding and abetting allegation, we agree

with the district court that the record contains not a

-27-
27

scintilla of evidence that would support the requisite

finding that RIHT "consciously shared" in the principal

wrongdoer's (Laurel's) specific intent to defraud the

plaintiffs. See United States v. Loder, 23 F.3d 586, 590-91

(1st Cir. 1994) (describing the elements of criminal aiding

and abetting). The lack of evidence of fraudulent intent on

the part of RIHT similarly dooms plaintiffs' allegations that

the bank committed mail or wire fraud. There is no basis in

the record from which a rational trier of fact could conclude

that the mailings or wires by RIHT (described in the

plaintiffs' brief in only a fleeting fashion) constituted

communications "in furtherance" of a scheme "intended to

deceive another, by means of false or fraudulent pretenses,

representations, promises, or other deceptive conduct."

McEvoy Travel Bureau, Inc. v. Heritage Travel, Inc., 904 F.2d

786, 791 (1st Cir.) (emphases added), cert. denied, 498 U.S.

992 (1990).

We conclude that the record contains insufficient

evidence to raise a triable issue as to whether RIHT

committed any of the RICO predicate acts alleged by the

plaintiffs.

-28-
28

B. The "Pattern" Requirement

The plaintiffs' RICO claims fail for an additional,

independent reason. For the plaintiffs to prevail, they must

establish not only that RIHT engaged in some "racketeering

activity," but that the bank's conduct constituted a

"pattern" of such activity. See 18 U.S.C. 1962(b)-(c).

The RICO statute by its terms specifies that a "pattern"

entails at least two predicate racketeering acts. See 18

U.S.C. 1961(5). However, while two predicate acts are

necessary to form a RICO "pattern," they may not be

sufficient unless they are both "related" and "amount to or

pose a threat of continued criminal activity." See H.J. Inc.

v. Northwestern Bell Tel. Co., 492 U.S. 229, 239-40 (1989);

Fleet Credit Corp. v. Sion, 893 F.2d 441, 444 (1st Cir.

1990). "In other words, a RICO pattern consists of

'continuity plus relationship.'" Sousa v. BP Oil, Inc., 1995

WL 842003, *13 (D. Mass. 1995) (quoting H.J., 492 U.S. at

239).

This court has remarked upon the elusiveness of any

helpful, talismanic definition of a RICO "pattern." See

Apparel Art Int'l Inc. v. Jacobson, 967 F.2d 720, 722 (1st

Cir. 1992). But, as then-Chief Judge Breyer explained,

courts have consistently held that a "single episode" of

criminal behavior, even if it involves the commission of

multiple related acts, does not constitute a "pattern." See

-29-
29

id. at 723. Instead, courts have tended to find RICO

"patterns" only where the defendant's conduct consists of

"multiple criminal episodes" extending over long periods of

time. Id. at 724; see also H.J., 492 U.S. at 242 ("Congress

was concerned in RICO with long-term criminal conduct.").

Here, the alleged instances of wrongful conduct by

RIHT all constituted part of a single "episode." Like the

multiple predicate acts that were described in Apparel Art as

"compris[ing] a single effort" to achieve one goal (obtaining

and keeping a Defense Department contract), see 967 F.2d at

723, the alleged racketeering acts attributed to RIHT in this

case, "taken together, . . . comprise a single effort" to

facilitate a single financial endeavor: the purchase and

renovation of the Sea Crest resort. Id.

If the mailings and wires RIHT transmitted in the

course of its involvement in the Sea Crest offering could

amount to a RICO "pattern," then virtually every claim

asserted under the federal securities laws could spawn a

companion RICO cause of action, because "[i]n today's

integrated interstate economy, it is the rare transaction

that does not somehow rely on extensive use of the mails or

the telephone." Roeder v. Alpha Indus., Inc., 814 F.2d 22,

31 (1st Cir. 1987) (internal quotation omitted). We conclude

that the instances of RIHT's conduct identified by plaintiffs

as constituting RICO predicate acts did not form a "pattern"

-30-
30

of racketeering activity and are more "appropriately

characterized as separate parts of a single [allegedly]

criminal episode." Apparel Art, 967 F.2d at 723.

VI.

Conclusion

The three separate judgments entered by the district

court in these consolidated cases are affirmed.

-31-
31