United States Court of Appeals
For the First Circuit
No. 00-1340
INVEST ALMAZ,
Plaintiff, Appellant,
v.
TEMPLE-INLAND FOREST PRODUCTS CORPORATION,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE
[Hon. James R. Muirhead, U.S. Magistrate Judge]
Before
Boudin, Circuit Judge,
Bownes, Senior Circuit Judge,
and Stahl, Circuit Judge.
Mark H. Alcott, with whom John F. Baughman and Paul, Weiss,
Rifkind, Wharton & Garrison, were on brief, for appellant.
Russell F. Hilliard, with whom Charles W. Grau and Upton,
Sanders & Smith, were on brief, for appellees.
March 16, 2001
STAHL, Circuit Judge. Plaintiff-appellant Invest Almaz
appeals from adverse rulings of the district court regarding
claims arising out of a failed attempt to purchase manufacturing
equipment from defendant-appellee Temple-Inland Forest Products
Corporation (“Temple-Inland”). Invest Almaz contends that the
district court abused its discretion by failing to order
restitution of funds retained by Temple-Inland after the deal
collapsed and by erroneously granting Temple-Inland's motion for
judgment as a matter of law on Invest Almaz's fraud claims.
Invest Almaz also contends that the jury was not properly
instructed on a claim that, in the course of these events,
Temple-Inland aided and abetted Invest Almaz's joint venture
partner, Pathex International Ltd. (“Pathex”), in breaching its
fiduciary duty to Invest Almaz. We affirm.
I.
Invest Almaz, a subsidiary of a Russian company engaged
in diamond mining, was formed for the purpose of investing the
pensions and savings of the parent company's employees. In
early 1993, Invest Almaz became interested in developing a plant
to manufacture oriented strand board (“OSB”), a wood and wafer
resin board used as a construction material. Invest Almaz's
intent was to build housing for the parent company's retired
employees and also to sell OSB for needed hard currency in the
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export market. After considering the possibility of building a
new plant for this purpose, Invest Almaz came to the conclusion
that it would be more cost-effective to purchase the equipment
from an existing plant in North America and have it transported
back to Russia.
With this in mind, Invest Almaz entered into
discussions with Pathex,1 a Canadian corporation with expertise
in the field, regarding the formation of a joint venture to
effectuate these plans. Under the arrangement contemplated by
the parties, Pathex would select and procure suitable equipment
from an existing plant, transport it to Russia, reconstruct and
upgrade the equipment once transported, and maintain it
thereafter. Invest Almaz would provide the capital, as well as
the land, labor and materials in Russia. During these
negotiations, Pathex allegedly represented that acquiring
suitable OSB manufacturing equipment would cost more than $17
million.2
1 Some of Pathex's actions with respect to these events
were undertaken through subsidiaries. For simplicity, we refer
to these entities collectively as “Pathex” unless otherwise
identified.
2 There is some dispute as to what this estimate was
understood to include. Invest Almaz contends that Pathex quoted
a purchase price of $17.25 million. Temple-Inland argues that
the price was understood to cover purchase, disassembly and
renovation of the equipment with only $8 million allocated to
the purchase price. We do not consider the difference
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Unbeknownst to Invest Almaz, Pathex was at this time
already engaged in negotiating an option to purchase a
Claremont, New Hampshire OSB plant from Temple-Inland (a
Delaware corporation) for $5 million. The plant was complete
and operational, although it had been closed since 1988 because
it could not compete with newer plants in the North American
market. The option was structured to allow Pathex access to the
plant and the site prior to deciding whether to go forward with
the transaction. In addition, the option gave Pathex the choice
of purchasing the entire facility, including real estate,3 or
only the equipment and buildings.4 Although the option agreement
was finalized on August 5, 1993 -- before the joint-venture
agreement between Invest Almaz and Pathex was signed -- its
contents were never disclosed to Invest Almaz.
In late September 1993, representatives from Invest
Almaz traveled to Canada to finalize the joint-venture agreement
particularly germane to our analysis, especially as either
estimate exceeded the price Pathex actually expected to pay.
3 While only the equipment was of interest to Invest
Almaz, Pathex was willing to consider taking the real estate --
at no additional cost -- for possible resale. This issue was
left open in the option agreement because of questions
concerning the value of the real estate and the extent of
environmental contamination at the site.
4 The option required Pathex to purchase the buildings
because removal of the equipment would, in at least some
instances, require the buildings to be dismantled.
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with Pathex. Pathex arranged with Temple-Inland for Invest
Almaz's representatives to tour the Claremont OSB plant during
their stay, and Vladimir Semkin and Viktor Tikhov, both
engineers employed by Invest Almaz, were shown the facility by
Temple-Inland employee Earl Taylor. Semkin and Tikhov were
given written information about the plant and afforded
considerable opportunity to inspect the plant's equipment and
ask questions of Taylor, although Invest Almaz later came to
believe that the information it obtained about the equipment was
not entirely accurate, candid or complete.
Invest Almaz formally entered into the joint-venture
agreement with Pathex on October 4, 1993. The agreement
detailed the respective obligations of Invest Almaz and Pathex,
requiring Invest Almaz to contribute in excess of $21 million in
“investments and services” to the overall project and Pathex to
contribute a little less than half that amount, all in services.
The agreement also established a schedule for Invest Almaz's
payments. Although the agreement did not specifically identify
Temple-Inland’s facility as the source of the equipment that
would be purchased by the joint venture, Invest Almaz's
officials testified that they understood this to be the case,
and there is no evidence in the record that any other facility
was under consideration at the time.
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While the final negotiations with Invest Almaz were
taking place, Pathex exercised its right under the option
agreement to inspect the Claremont plant, making a number of
visits with its own personnel, commissioning a professional
appraisal of the plant and requesting two assessments from an
environmental consultant, Aries Engineering (“Aries”). The
appraisal, received by Pathex in December 1993, revealed, among
other things, that the property and buildings were assessed for
tax purposes at $1.6 million. The environmental assessments,
received in March and May 1994, indicated that, while in
operation and subsequent to its closure, the plant had run afoul
of environmental regulations, including those governing
wastewater discharges and hazardous materials storage. The
Aries report noted the presence of lead and other potentially
hazardous substances in site soils and sediments, petroleum-
related contamination in the groundwater, and contaminant stains
on cement at various locations in the facility. Invest Almaz
never received copies of any of these documents from Pathex, nor
was it informed of the information they contained.
In March 1994, Pathex, through a subsidiary, exercised
its option to purchase the equipment at the Claremont plant.
Because of the environmental problems identified by Aries,
Pathex decided not to acquire the real estate. The Asset
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Purchase Agreement Pathex and Temple-Inland executed provided
for $2 million to be paid at the closing and the remaining $3
million to be remitted in the form of a non-recourse promissory
note,5 payable in three installments. The parties also executed
a Security Agreement, giving Temple-Inland a security interest
in the equipment. Invest Almaz was not informed by Pathex of
the terms of the Asset Purchase Agreement or the Security
Agreement.
Invest Almaz almost immediately failed to meet the
schedule of payments laid out in the joint-venture agreement,6
although it did eventually transfer over $6 million to Pathex
pursuant to that agreement. Of this amount, Pathex paid
approximately $2.3 million to Temple-Inland and used the
5 Although the promissory note indicates that there is
no recourse to Pathex, this provision is inconsistent with
language in the accompanying Security Agreement, which provides
that, in the event of default and foreclosure, Pathex would
remain liable for any deficiency (and also could recover any
surplus). Because the promissory note specifically states that,
if there is a default, “Payee [Pathex] shall look to the
security interests referenced in the . . . security agreement .
. . for satisfaction of payment of any amounts due”, we think it
likely that the Security Agreement language would control.
However, resolution of this anomaly is not ultimately necessary
to our analysis.
6 The first two installments required by the agreement
were $7.22 million in November 1993 and $5.5 million in February
1994. The record indicates that Invest Almaz's first payment
was made in February 1994 and was for only $1.3 million. A
second payment of $3.5 million was made in March 1994 and two
smaller payments were made in the fall of 1994.
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remainder for other purposes. 7 The bulk of the funds paid to
Temple-Inland went towards the $2 million down payment required
by the Asset Purchase Agreement. Subsequently, and in part as
a result of Invest Almaz's inability to make its own payments to
the joint venture, Pathex failed to make the three installments
required by the Agreement. After negotiating a series of
extensions with Temple-Inland -- and paying Temple-Inland a
further $300,000 in delinquency payments -- Pathex defaulted on
the debt.8
The Security Agreement gave Temple-Inland the right to
foreclose on the equipment to satisfy the debt in the event of
a default by Pathex. The Agreement also specified that, in the
event of foreclosure, Temple-Inland would have to account to
Pathex for any surplus resulting from the sale, while Pathex
would be responsible for any deficiency. Temple-Inland chose
not to foreclose, however. Instead, Temple-Inland and Pathex
7 Approximately $1.5 million of the Invest Almaz payments
were diverted, at Invest Almaz’s request, to a third party,
Burnell Limited, for purposes which are the subject of dispute.
The record does not detail the disposition of the remainder,
although Charles Kosa, former President of Pathex, testified
that what was not paid to Temple-Inland pursuant to the Asset
Purchase Agreement was used to defray other costs associated
with inspecting and purchasing the plant and implementing the
joint-venture agreement.
8 The final extension negotiated between Pathex and
Temple-Inland ran out on December 2, 1994.
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negotiated a “Mutual Release and Cancellation of Debt” (the
“Mutual Release”). Under the Mutual Release, Pathex's $3 million
debt was cancelled, and Temple-Inland regained title to the
purchased assets. Temple-Inland also was allowed to retain the
$2.3 million in payments already made by Pathex. In addition,
each party gave up any claims it might have had against the
other arising out of the Asset Purchase Agreement and associated
documents. The Mutual Release was executed by Pathex on
December 13, 1994. Although Invest Almaz was informed at the
time that Pathex was “terminating” the project, Invest Almaz was
not involved in the discussions concerning the Mutual Release
and was never informed of its terms.
In late 1996, attorneys representing Invest Almaz
contacted Pathex in an effort to determine what had become of
the funds Invest Almaz contributed to the joint venture.
Shortly thereafter, however, Pathex filed for bankruptcy.
Invest Almaz commenced the present action against Temple-Inland
in August 1997, filing a complaint that initially included only
an unjust enrichment count. The complaint was amended in
October 1997 to include an allegation that Temple-Inland had
aided and abetted Pathex in breaching a fiduciary duty to Invest
Almaz. Nearly two years later, in June 1999, Invest Almaz was
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allowed to amend its complaint once again, this time to add a
fraudulent concealment count.
The fraud and aiding and abetting claims were tried to
a jury while the unjust enrichment count was tried to the court.
The trial took place in December 1999, before Magistrate Judge
James Muirhead.9 At the end of plaintiff’s case, Temple-Inland
moved for judgment as a matter of law on the fraud and aiding
and abetting claims. Invest Almaz, in its response, sought
recognition that its fraud count also encompassed a theory that
Temple-Inland made affirmative misstatements to Invest Almaz.
Magistrate Judge Muirhead refused Invest Almaz's request to
include an affirmative fraud count in the case and granted
Temple-Inland's motion for judgment as a matter of law on the
existing fraudulent concealment count. The magistrate judge
denied Temple-Inland's motion with respect to the aiding and
abetting count and that count went to the jury. The jury
subsequently found in favor of Temple-Inland.
On February 8, 2000, the magistrate judge issued a
Memorandum and Order denying Invest Almaz's unjust enrichment
claim. The same day, final judgment was entered, incorporating
9 Magistrate Judge Muirhead exercised jurisdiction over
the case by consent of the parties, pursuant to 28 U.S.C. §
636(c).
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the magistrate judge's orders and the jury's verdict. This
appeal followed.
II.
On appeal, Invest Almaz challenges the magistrate
judge's rulings with respect to the unjust enrichment and fraud
claims and his instructions to the jury with respect to the
aiding and abetting claim. For the reasons set forth below, we
affirm the judgment of the district court in all respects.
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A. Unjust Enrichment
It is undisputed that when the dust settled on Invest
Almaz's failed attempt to purchase the Claremont plant, Temple-
Inland held title to the plant and also retained the
approximately $2.3 million in payments it had received from
Pathex. The question on appeal is whether, under the
circumstances, the magistrate judge erred in concluding that
Temple-Inland was not unjustly enriched by this outcome.10
In New Hampshire common law, “[t]he doctrine of unjust
enrichment is that one shall not be allowed to profit or enrich
himself at the expense of another contrary to equity.” Cohen v.
Frank Developers, Inc., 389 A.2d 933, 938 (N.H. 1978). A
defendant is unjustly enriched, and a plaintiff is entitled to
10 The body of this opinion analyzes in detail Invest
Almaz's restitution arguments under New Hampshire common law
principles. However, Invest Almaz's brief also presses a second
claim for restitution premised on section 201(1) of the
Restatement (Second) of Restitution. Section 201(1) provides
that “[w]here a fiduciary in violation of his duty to the
beneficiary transfers property or causes property to be
transferred to a third person, the third person, if he gave no
value or if he had notice of the violation of duty, holds the
property upon a constructive trust for the beneficiary.”
The magistrate judge rejected this claim on the alternative
grounds that: (1) it was not clear that a New Hampshire court
would adopt the principle contained in section 201(1); and (2)
Invest Almaz had failed to prove that Temple-Inland either had
notice of Pathex's wrongdoing or failed to provide value.
Finding nothing in Invest Almaz's conclusory arguments on appeal
sufficient to disturb the magistrate judge's ruling with respect
to this theory of recovery, we affirm the magistrate judge's
conclusion for the reasons set forth in his opinion.
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restitution, when the court determines that the defendant has
“received a benefit and it would be unconscionable for the
defendant to retain that benefit.” Nat'l Employment Serv. Corp.
v. Olsten Staffing Serv., Inc., 761 A.2d 401, 406 (N.H. 2000).
Of relevance in this case, a plaintiff in an unjust enrichment
case need not prove that the defendant obtained the benefit
through wrongful acts; passive acceptance of a benefit may also
constitute unjust enrichment. R. Zoppo Co. v. City of
Manchester, 453 A.2d 1311, 1313 (N.H. 1982); see also Petrie-
Clemons v. Butterfield, 441 A.2d 1167, 1172 (N.H. 1982) (“Unjust
enrichment may exist when an individual receives a benefit as a
result of his wrongful acts, or when he innocently receives a
benefit and passively accepts it.”). Nor does unjust enrichment
require a contractual relationship between the plaintiff and
defendant. Presby v. Bethlehem Vill. Dist., 416 A.2d 1382, 1383
(N.H. 1980). However, more than a moral claim for reimbursement
is required for restitution to be justified. Cohen, 389 A.2d at
937. Instead, “[t]here must be some specific legal principle or
situation which equity has established or recognized to bring a
case within the scope of the doctrine.” Id. Finally, in
determining the extent to which a defendant may have been
unjustly enriched, “the focus is not upon the cost to the
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plaintiff, but rather it is upon the value of what was actually
received by the defendants.” R. Zoppo Co., 453 A.2d at 1314.
The magistrate judge found that, because Invest Almaz
was the source of the $2.3 million paid to Temple-Inland by
Pathex, Invest Almaz had conferred a “benefit” on Temple-Inland.
However, he concluded that equity did not entitle Invest Almaz to
restitution for two reasons. First, he found that Temple-Inland
either provided value for or was otherwise legally entitled to
retain all of the $2.3 million it received from Pathex. One
million dollars of this amount represented option payments
($700,000) made prior to the sale11 or delinquency payments
($300,000) made after the closing to avoid a default on the
promissory note. The magistrate judge found that Temple-Inland
gave full value for these amounts, by keeping the plant off the
market during the option period and by agreeing to extend the
payment schedule after the sale, and was not required to return
them. A further $320,000 was not subject to restitution because
it defrayed a payment Temple-Inland was required to make to
11 Pathex paid $150,000 for the initial option with the
right to extend for four more months for $100,000 per month.
Temple Inland ultimately allowed Pathex to extend the option
still further for another $150,000, resulting in a total of
$700,000 in option payments being made to Temple-Inland.
Pursuant to the option agreement's terms, that amount was
credited towards the $2 million down payment required by the
Asset Purchase Agreement.
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General Electric (“GE”) if the equipment was removed from the
plant, as Invest Almaz's plans required.12 With respect to the
remaining $980,000, the magistrate judge relied on the principle
that a payor typically cannot recover in restitution from a payee
who accepts a payment in satisfaction of a third party’s debt --
even if it turns out the payor made the payment by mistake. See
United States v. Bedford Assocs., 713 F.2d 895, 904 (2d Cir.
1983) (holding that restitution is not available against a
defendant “where the defendant has received the payment in good
faith and used it in satisfaction of the debt of a third person
to the defendant”); Equilease Corp. v. Hentz, 634 F.2d 850, 853
(5th Cir. 1981) (“It is patently unfair to require an innocent
payee who has received and used the money to satisfy a debt to
repay the money.”). See generally Greenwald v. Chase Manhattan
Mortgage Corp., No. 00-1447, ___ F.3d ___, slip op. at 7-10 (1st
Cir. March 2, 2001) (analyzing and applying this principle in a
case involving Massachusetts law). Because Temple-Inland
12 This payment was made pursuant to a tax benefit
transfer agreement executed in 1981 by GE and the prior owner of
the facility. The agreement provided GE with certain tax
benefits if the equipment remained in use at the plant for
fifteen years. When Temple-Inland sold the equipment to Pathex
for removal to Russia, GE incurred a tax liability in the amount
of $320,000 that Temple-Inland was required to reimburse. The
magistrate judge found this expense chargeable against Invest
Almaz because it would not have been incurred if Temple-Inland
had sold the plant to a buyer that did not intend to remove the
equipment.
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innocently received the money as partial payment on Pathex's
debt, the magistrate judge reasoned, Temple-Inland was entitled
to keep it.
In the alternative, the magistrate judge held that
Invest Almaz's restitution claim failed because Invest Almaz had
introduced no evidence demonstrating that Temple-Inland was
unfairly advantaged by the outcome resulting from the Mutual
Release. Invest Almaz could have met its burden, the magistrate
judge suggested, with evidence establishing that a sale of the
secured assets (the equipment) would have yielded an amount
larger than the $3 million Pathex still owed on the promissory
note. Under the Security Agreement and New Hampshire law, any
such excess would have been returned to Pathex and potentially
could have been recovered by Invest Almaz. However, the court
found that Invest Almaz had “failed to present any evidence that
the equipment could have been sold at auction for an amount
greater than the . . . debt owed by Pathex.” In the absence of
such evidence, it was “neither unreasonable nor unconscionable to
allow Temple Inland to retain both the collateral and the funds
[Pathex] paid . . . .”
Familiar standards govern our review of the magistrate
judge's conclusions. The factual findings underlying the
magistrate judge's determination are reviewed for clear error.
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Fed. R. Civ. P. 52. By contrast, the magistrate judge's
“articulation and application of legal principles is scrutinized
de novo.” Texas P.R., Inc. v. Dept. of Consumer Aff., 60 F.3d
867, 874 (1st Cir. 1995). As a corollary of the latter
principle, findings of fact “predicated upon, or induced by,
errors of law . . . will be accorded diminished respect on
appeal.” Dedham Water Co. v. Cumberland Farms Dairy, Inc., 972
F.2d 453, 457 (1st Cir. 1992). Finally, to the extent that the
ultimate decision in a restitution case rests on a judgment
regarding the equities of the case, rather than application of an
established rule of restitution,13 that exercise of judgment is
reviewed only for abuse of discretion, reflecting our view that
the finder of fact “who has had first-hand exposure to the
litigants and the evidence is in a considerably better position
to bring the scales into balance than an appellate tribunal.”
Texas P.R., 60 F.3d at 875 (quoting Rosario-Torres v. Hernandez-
Colon, 889 F.2d 314, 323 (1st Cir. 1989)); see also Pella Windows
& Doors, Inc. v. Faraci, 580 A.2d 732, 733 (N.H. 1990) (“Unless
13 We have recently noted that, although “[t]he origins
of unjust enrichment actions largely lie in equity,” many
restitution decisions involve the application of restitution
“rules,” such as those articulated in the Restatement of
Restitution (1936), rather than purely equitable judgments as to
the fair or just result. Greenwald, slip op. at 12. To the
extent that a decision relies upon the “articulation and
application” of such rules, a less deferential standard of
review is arguably appropriate. See Texas P.R., 60 F.3d at 874.
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it is unsupported by the record, we generally defer to the trial
court's determination as to whether the facts and equities of a
particular case warrant [restititution].”).
Bearing in mind the foregoing, we conclude that Invest
Almaz has not demonstrated that the magistrate judge abused his
discretion in ruling for Temple-Inland on the unjust enrichment
claim. Invest Almaz’s argument that the magistrate judge
improperly analyzed the value Temple-Inland provided and costs it
incurred is largely conclusory and, with one exception, wholly
without merit.14 With respect to the $1 million in option and
delinquency payments made by Pathex, Invest Almaz states only
that there is “no evidence that Temple-Inland gave up a thing” in
exchange for these funds. This assertion is directly at odds
with the magistrate judge's finding that Temple-Inland did
provide the bargained-for consideration, in the first instance by
keeping the plant off the market for the agreed period of time15
14 In its preface to the arguments analyzed in the body
of this opinion, Invest Almaz contends that the court should not
have even attempted an independent analysis of costs incurred
and value provided because an internal memorandum from Temple-
Inland's financial officer showed a “profit” on the transaction
of $1,478,156. This is frivolous. As Temple-Inland correctly
notes, such internal calculations of cash flow are not
equivalent to a legal analysis of the benefits and burdens
resulting from a transaction.
15 Invest Almaz makes much of the fact that no other
purchasers appeared during the option period. However, Invest
Almaz cites no precedent, in New Hampshire or elsewhere,
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and in the second by extending the deadline for Pathex to make
payments under the Asset Purchase Agreement. Invest Almaz does
not suggest that the magistrate judge was wrong in finding that
Temple-Inland fulfilled its obligations under the two agreements.
Nor does Invest Almaz point to any evidence indicating, for
example, that the amount paid by Pathex for the option was
grossly unfair. Under the circumstances, we see no reason to
conclude that the magistrate judge erred in finding that Temple-
Inland “gave full value” for the $1 million received under the
option agreement or the subsequent extension payments.
So too, Invest Almaz provides no convincing reason for
us to conclude that the magistrate judge erred in allowing
Temple-Inland to retain a further $320,000 because of the payment
made to GE. Invest Almaz's sole argument is that the magistrate
judge improperly credited the testimony of George Vorpahl,
Temple-Inland's general counsel, who stated that the payment
would not have been required if the equipment were sold to most
other buyers, over that of Stacey Cooke, a financial analyst at
Temple-Inland, who stated that the payment would have been
required no matter who purchased the property. Had the
magistrate judge relied on the proper testimony, Invest Almaz
supporting its argument that Temple-Inland therefore failed to
“give value” in exchange for the payments.
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contends, he would have concluded that the payment was not
attributable to this particular sale and therefore could not be
offset against the payments Temple-Inland received. We are not
inclined to second-guess the magistrate judge's reasoned
conclusions concerning the credibility of competing testimony,
especially as Invest Almaz gives us no reason to believe that the
magistrate judge's decision was in fact incorrect.
With respect to the remaining $980,000 paid to Temple-
Inland, Invest Almaz first suggests that New Hampshire law does
not recognize the principle that a payor cannot recover in
restitution from a payee who accepts a payment in satisfaction of
the debt of a third party. Invest Almaz is incorrect. See
Winslow v. Anderson, 102 A. 310, 312 (N.H. 1917) (holding that,
where plaintiff mistakenly overpaid the creditor of a third
party, and the amount of the overpayment was innocently accepted
by the creditor as payment for additional debts owed by the third
party, equity would not require creditor to refund the amount of
the overpayment; plaintiff's only cause of action was against the
third party, who benefitted from the mistake).
Invest Almaz’s second and more compelling contention is
that the factual circumstances of this case counsel against
application of the foregoing rule to offset the $980,000 payment.
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Invest Almaz correctly notes that there is no indication in the
cases cited by the magistrate judge that the innocent
creditor/defendant ultimately received more than the third-party
debtor owed. The same appears to be true of Winslow. As a
result, the possibility of the defendant enjoying a double
recovery was not presented in these cases; the only issue before
each court was whether the plaintiff could get his money back
from the innocent defendant who was actually paid or had to
pursue the (unintentionally benefitted) third-party debtor
instead. By contrast, Temple-Inland ultimately received money
from Invest Almaz (via Pathex) and the facility from Pathex. To
the extent that this resulted in Temple-Inland recovering more
than the amount it was owed by Pathex, Invest Almaz argues, these
cases do not preclude Invest Almaz from obtaining restitution.
Invest Almaz's argument has a certain logic and is not
without precedential support. See Strubbe v. Sonnenschein, 299
F.2d 185, 192 (2d Cir. 1962) (holding, as an exception to the
general rule, that restitution is justified to the extent that a
payment to a third party's creditor “exceed[s] the amount due
[the creditor] from [the third party]”); see also Bedford Assoc.,
713 F.2d at 904 (distinguishing a case in which the creditor
ultimately received less than the total amount it was owed from
situation posed by Strubbe). However, accepting arguendo that
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Invest Almaz is correct, we think it evident that winning this
point does not conclusively resolve the issue in Invest Almaz's
favor. If Invest Almaz can potentially recover the excess
Temple-Inland received over Pathex's debt, the question becomes
whether, as a factual matter, Temple-Inland actually has
recovered more than it was properly owed by retaining the plant
plus the $980,000. The magistrate judge, in his alternative
holding, concluded that this had not been established. As a
result, all Invest Almaz’s argument accomplishes is to make the
third part of the magistrate judge’s offset analysis contingent
on his assessment of whether Temple-Inland recovered more than
was equitable as a result of the Mutual Release. Accordingly, we
turn to that question.
Invest Almaz raises two challenges to the magistrate
judge's analysis of the outcome of the Mutual Release. First,
Invest Almaz argues that, by requiring Invest Almaz to offer
proof that the value of the plant at auction would exceed the $3
million remaining on the promissory note, the magistrate judge
“introduced an element that simply is not part of a claim of
unjust enrichment, and then assigned Invest Almaz the burden of
proof on that element.” Invest Almaz offers no support for this
position and we find it unpersuasive. In order to establish that
Temple-Inland was unjustly enriched, Invest Almaz plainly had the
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burden of proving the extent to which Temple-Inland was
benefitted by the transaction in question. See, e.g., Moore v.
Knight Founds., Inc., 444 A.2d 546, 547 (N.H. 1982). We see no
error in the magistrate judge's methodology, which used the
amount that could be realized in a foreclosure sale as the
benchmark of the value of the plant at the time Pathex defaulted.
To the contrary, that approach is substantially in accord with
other cases using the market value of property to measure the
extent to which a party may have been unjustly enriched. See
Petrie-Clemons, 441 A.2d at 1172 (holding that, where plaintiffs
sought restitution for improvements made to premises leased from
defendants, the “appropriate basis for determining the amount of
the defendant's benefit is the difference between the market
value of the realty before and after the improvements”); see also
Moore, 444 A.2d at 547 (reversing restitution award to plaintiff
for improvements made to house prior to purchase where “plaintiff
presented no evidence as to any increase in the fair market value
of the real estate . . .”). The magistrate judge's approach also
strikes us as reasonable in light of the terms of the Security
Agreement, which specified that Temple-Inland could retake and
sell the collateral in the event of a default and apply the net
proceeds (after deducting the costs of the sale) towards the
amount due on the note. Under this provision, there would have
-24-
been no question of a surplus arising unless the net proceeds of
a foreclosure sale, after costs, exceeded the remaining
indebtedness.16
Indeed, the magistrate judge's approach could be
considered generous to Invest Almaz's case, because it assigns no
value to what Pathex and, indirectly, Invest Almaz, gained by
avoiding foreclosure. Under the Security Agreement, if the
amount realized at auction had been less than the $3 million
remaining on the note, Pathex could have been liable for the
deficiency. Agreeing to the Mutual Release avoided the
possibility of such a deficiency being assessed against Pathex.
Invest Almaz's second argument on this point is that
the magistrate judge improperly failed to consider the evidence
it did present concerning the value of the plant's assets at the
time of the default. Invest Almaz's evidence showed that, in May
1996, Temple-Inland entered into an agreement to sell the
Claremont plant for $5 million to another buyer, Ced-Or, Inc.
(“Ced-Or”). The transaction ultimately fell through, for reasons
the parties do not explain. At trial, Invest Almaz offered this
16 As the magistrate judge noted, this would also be the
result under the applicable provisions of the New Hampshire
Uniform Commercial Code. See N.H. Rev. Stat. Ann. § 382-A:9-504
(discussing secured party's right to dispose of collateral after
default and the order in which the proceeds of disposition are
to be applied).
-25-
evidence in support of its contention that the value of the plant
was approximately $5 million in December 1994, when Pathex
defaulted. The magistrate judge ruled the evidence inadmissible,
suggesting that significant changes in the economic climate
during the intervening period, of which he took judicial notice,
rendered the later transaction irrelevant to the value of the
plant at the earlier time.17
On appeal, Invest Almaz contends that the magistrate
judge improperly “chose to rely on personal and anecdotal
experience outside the record” in making his ruling on the
evidence. According to Invest Almaz, whether prices were
depressed in 1994, and whether the economy had begun to improve
17 With respect to the economic conditions at the time of
the default the magistrate judge stated:
In 1995, when every big bank in this state had gone
down the tubes, when people -- when the real estate
price, when all other prices in this state were
incredibly depressed, a fact of which I cannot but
take judicial notice because I lived here during that
time -- and in fact I practiced commercial litigation
during that time and had enough lender liability cases
to fill file drawers and tried those cases. You know
it's smoke and mirrors to say you would have sold that
equipment for $3 million.
Shortly thereafter, when Invest Almaz's counsel pressed the Ced-
Or agreement, the magistrate judge added:
What somebody is willing to pay a year or two later in
an economic climate which had hit the bottom and was
on its way up is not evidence of what somebody would
have paid at a foreclosure sale in 1995.
-26-
by 1996, are questions “subject to reasonable dispute,” and
therefore not proper subjects of judicial notice under Fed. R.
Evid. 201. See Fed. R. Evid. 201(b) (“A judicially noticed fact
must be one not subject to reasonable dispute in that it is
either (1) generally known within the territorial jurisdiction of
the trial court or (2) capable of accurate and ready
determination by resort to sources whose accuracy cannot
reasonably be questioned.”); see also Coalition for the Pres. of
Am. Brake Drum & Rotor Aftermarket Mfrs. v. United States, 15 F.
Supp. 2d 918, 928 (Ct. Int'l Trade 1998) (refusing, pursuant to
Fed. R. Evid. 201, to take judicial notice of the fact that the
economy grew and light auto sales increased in 1996). As a
result, Invest Almaz argues, the magistrate judge's reliance on
this information as a basis for rejecting the Ced-Or evidence
constituted an abuse of discretion. See United States v.
Pitrone, 115 F.3d 1, 7 (1st Cir. 1997) (stating that decisions
regarding admissibility of evidence are reviewed for abuse of
discretion); see also United States v. Roberts, 978 F.2d 17, 21
(1st Cir. 1992) (noting that an abuse of discretion may be found
“when a relevant factor . . . is overlooked, or when an improper
factor is accorded significant weight . . .”).
We find Invest Almaz's argument unavailing. To begin
with, we are not convinced that the magistrate judge had any
-27-
obligation to meet the judicial notice requirements of Fed. R.
Evid. 201 under the circumstances presented here. As Fed. R.
Evid. 104(a) and 1101(d)(1) make clear, Fed. R. Evid. 201
typically does not apply to facts considered by a court when
ruling on the admissibility of evidence. See Fed. R. Evid.
104(a) (stating that, when deciding “[p]reliminary questions
concerning . . . the admissibility of evidence[,] . . . [the
court] is not bound by the rules of evidence except those with
respect to privileges”); Fed. R. Evid. 1101(d)(1) (stating that
the Federal Rules of Evidence, except with respect to privileges,
are “inapplicable . . . [to] [t]he determination of questions of
fact preliminary to admissibility of evidence when the issue is
to be determined by the court under Rule 104"); see also 21
Charles Alan Wright & Kenneth W. Graham, Jr., Federal Practice
and Procedure § 5103, at 479 (1977) (“Where the judge is taking
judicial notice of a fact for the purpose of ruling on the
admissibility of evidence, he may do so without regard to Rule
201.”). Nor do we consider Invest Almaz's summary argument that
the state of the New Hampshire economy is “subject to reasonable
dispute” persuasive as to whether the requirements of Fed. R.
Evid. 201(b), even if applicable, were violated in this instance.
However, we need not reach the judicial notice issue,
as we conclude that the magistrate judge's finding that value had
-28-
not been established is supportable even if the magistrate judge
erred in considering the state of the New Hampshire economy. The
fact that the Ced-Or transaction occurred nearly eighteen months
later would undercut its probative value in any event, as would
the fact that the Ced-Or deal ultimately fell apart. We find in
the record no corroborative evidence, such as expert testimony,
supporting Invest Almaz's contention that the Ced-Or price of May
1996 was a good indicator of the plant's value in December 1994.
Absent such evidence, we think the magistrate judge reasonably
could have concluded that the mere fact of the Ced-Or transaction
was inadequate to establish the value of the plant.
Having accepted the magistrate judge's conclusion that
Invest Almaz did not establish that the plant's value exceeded
the $3 million owed on the promissory note, Invest Almaz's
restitution claim fails under either prong of his analysis.
Absent proof that Temple-Inland recovered more than it was owed,
Invest Almaz's argument that it is entitled to recover the last
$980,000 of the amount paid by Pathex evaporates, for reasons
already discussed. Given our agreement with the remainder of the
magistrate judge's analysis of value given and costs incurred by
Temple-Inland, there is no “enrichment” left on which an unjust
enrichment claim could be premised. In addition, Invest Almaz's
failure to introduce adequate evidence regarding the value of the
-29-
plant precludes its restitution claim on a more fundamental
level: without adequate evidence of the value left in Temple-
Inland's hands at the end of the day, there is no proof that
Temple-Inland experienced a net benefit even if the magistrate
judge's various offsets were disregarded. Affirmance is
justified on either ground.
B. Fraud
On appeal, Invest Almaz challenges both the magistrate
judge's denial of its belated motion to add an affirmative fraud
count to its complaint and the magistrate judge's ruling granting
Temple-Inland judgment as a matter of law on its fraudulent
concealment count. We treat each in turn.
-30-
1. Refusal to Allow Invest Almaz to Add Affirmative
Fraud Count
As previously noted, Invest Almaz did not assert its
affirmative misrepresentation claims until very late in the
proceedings. No allegations of affirmative fraud were included
in Invest Almaz's second amended complaint, nor was this theory
of the case identified in Invest Almaz's proposed jury
instructions, final pretrial statement, or opening argument at
trial. Even when Invest Almaz finally asserted the claims at the
close of plaintiff's evidence, it did not do so directly.
Instead, Invest Almaz incorporated the claims into its opposition
to Temple-Inland's motion for judgment as a matter of law,
accusing Temple-Inland of “misreading Invest Almaz's theory of
the case” by “ignoring” the affirmative misrepresentation claims.
At the hearing on its motion, Temple-Inland commented
that the claims had never been pleaded, even though, under the
Rules, they needed to be pleaded “with some specificity.”
Temple-Inland did not, however, expressly contend that the
inclusion of the claims would be prejudicial. Invest Almaz, for
its part, did not dispute that the claims were being raised for
the first time. However, it argued that all it was requesting
was amendment of the pleadings to conform to the evidence already
introduced. Invest Almaz contended that doing so would not
-31-
prejudice Temple-Inland because the affirmative fraud claims
largely tracked the concealment claims.
At the conclusion of the hearing, the magistrate judge
denied Invest Almaz's request to add the affirmative fraud claims
to the case, holding that their last minute inclusion would be
prejudicial to Temple-Inland “in view of the very special fraud
pleading requirements of [Fed. R. Civ. P.] Rule 9.” The
magistrate judge did not refer to specific evidence of prejudice,
other than the “untimeliness” of the effort to amend. 18 On
appeal, Invest Almaz argues that it should have been allowed to
amend its pleadings to include the affirmative fraud count, in
view of the liberal policies governing amendments to conform
pleadings to the evidence contained in Fed. R. Civ. P. 15(b) and
the magistrate judge's failure to cite evidence that Temple-
Inland would be prejudiced by the amendment. Temple-Inland
responds that Invest Almaz failed to move to amend its pleadings
below, thus waiving this argument, or, in the alternative, that
Temple-Inland is entitled to judgment as a matter of law on the
merits of the affirmative fraud claims.
18 The magistrate judge also stated that, in his view,
omitting the claims would not prejudice Invest Almaz, because
the alleged affirmative misstatements could equally be construed
as actionable partial disclosures.
-32-
As a threshold matter, we find Temple-Inland’s argument
that Invest Almaz failed to preserve the issue of amendment of
its pleadings unpersuasive. Although Invest Almaz chose to
broach its affirmative fraud claims for the first time in its
opposition to Temple-Inland's motion, Invest Almaz’s counsel
clearly indicated at the hearing that it wished to amend the
pleadings if the magistrate judge thought it necessary. In
addition, the magistrate judge himself framed his decision as a
denial of Invest Almaz’s request for leave to amend. Invest
Almaz’s appeal of the denial of leave to amend is therefore
properly before us.19
We turn to the merits of Invest Almaz's argument guided
by the following principles. “While leave to amend shall be
freely given when justice so requires . . . the liberal amendment
19 Although it does not change our conclusion, we note
that Invest Almaz’s characterization of what the magistrate
judge did is not, strictly speaking, correct. Invest Almaz
plainly believes it requested -- and was improperly denied --
leave to amend its pleadings to conform with the evidence
pursuant to Fed. R. Civ. P. 15(b). However, Rule 15(b) applies
under only two circumstances: when an issue not contained in the
pleadings is tried by consent (express or implied) of the
parties, or when a party objects to evidence as outside the
pleadings and the court exercises its discretionary right to
allow amendment. Neither circumstance is present here,
indicating that the magistrate judge's decision actually was
rendered pursuant to Fed. R. Civ. P. 15(a). Because the
arguments made by Invest Almaz are also relevant in the context
of Fed. R. Civ. P. 15(a), this error is not fatal to Invest
Almaz's appeal on this issue.
-33-
policy prescribed by Rule 15(a) does not mean that leave will be
granted in all cases.” Acosta-Mestre v. Hilton Int'l of P.R.,
Inc., 156 F.3d 49, 51 (1st Cir. 1998) (internal citations and
quotation marks omitted). “Among the adequate reasons for
denying leave to amend are 'undue delay' in filing the motion and
'undue prejudice to the opposing party' by virtue of allowance of
the motion.” Id. (quoting Foman v. Davis, 371 U.S. 178, 182
(1962)). Furthermore, “when considerable time has elapsed
between the filing of the complaint and the motion to amend, the
movant has the burden of showing some valid reason for his
neglect and delay.” Acosta-Mestre, 156 F.3d at 52 (quoting
Stepanischen v. Merchs. Despatch Transp. Corp., 722 F.2d 922, 933
(1st Cir. 1983)) (internal quotation marks omitted). We also
note that, in reviewing a decision denying leave to amend, we
accord significant deference to the decisionmaker below. Denial
of leave to amend is reviewed only for abuse of discretion, and
we will affirm the decision below “if any adequate reason for the
denial is apparent on the record.” Acosta-Mestre, 156 F.3d at 51
(quoting Grant v. News Group Boston, Inc., 55 F.3d 1, 5 (1st Cir.
1995)).
We find that the magistrate judge's refusal to allow
amendment withstands Invest Almaz's challenge. We concede that
the magistrate judge's finding of prejudice could have been
-34-
accompanied by a clearer explanation of its grounds than was
given.20 Nonetheless, we think the record adequate to sustain the
magistrate judge's conclusion. The fact that the theory
underlying the affirmative fraud counts had yet to be more than
obliquely mentioned, moments before Temple-Inland was scheduled
to begin presenting its case, certainly supports an inference of
prejudice to Temple-Inland's defense. The inference seems
particularly strong here, given that some of Temple-Inland's
testimony -- including the important testimony of Charles Kosa,
former president of Pathex and Temple-Inland's first witness --
was to be presented via videotaped deposition. Under the
circumstances, Temple-Inland had a limited ability to adapt its
defense on short order to counter Invest Almaz's new claims.
In addition, there is nothing in the record suggesting
that Invest Almaz met its burden of showing a “valid reason for
[its] neglect and delay” in proposing the amendment. Acosta-
20 Indeed, it is possible to read the transcript to
suggest that, because of the pleading requirements for fraud
claims imposed by Fed. R. Civ. P. 9, the magistrate judge simply
presumed that prejudice to Temple-Inland would result from
Invest Almaz's late inclusion of such claims. We do not believe
that any court has used Rule 9 to raise the Rule 15(a) bar in
this way and we are not inclined to do so now. Cf. 6 Charles
Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice
and Procedure § 1300 & n.1 (2d ed. 1990) (stating that “[a]n
insufficient allegation of fraud or mistake is subject to the
liberal amendment provisions of Rule 15" and citing numerous
cases allowing amendments to cure insufficient fraud pleadings).
-35-
Mestre, 156 F.3d at 52. To the contrary, Invest Almaz's counsel
admitted at the hearing on Temple-Inland's motion that the
affirmative fraud claims were raised at this late stage simply
because it hadn't occurred to Invest Almaz to add them earlier.
As we recently said, “[w]hat the plaintiff knew or should have
known and what he did or should have done are relevant to the
question of whether justice requires leave to amend under this
discretionary provision.” Leonard v. Parry, 219 F.3d 25, 30 (1st
Cir. 2000). Such considerations counsel against amendment here.
2. Judgment as a Matter of Law on Fraudulent
Concealment Count
Invest Almaz's second amended complaint alleged that
Temple-Inland fraudulently failed to disclose a substantial
number of material facts regarding the plant. The alleged
omissions fell into three broad categories: omissions regarding
the monetary value of the plant (dubbed by the magistrate judge
the “value” claims); omissions regarding alleged obsolescence of
the plant's equipment (the “obsolescence” claims); and omissions
regarding environmental problems at the plant (the
“environmental” claims). Consistent with the elements of
fraudulent concealment, Invest Almaz alleged, with respect to
each omission: that the information was material; that Temple-
Inland intentionally concealed the information despite having a
duty to disclose it; that Invest Almaz reasonably relied upon the
-36-
omissions; and that Invest Almaz was damaged as a result. See
MAC Fin. Plan of Nashua, Inc. v. Stone, 214 A.2d 878, 880 (N.H.
1965) (summarizing the elements of fraudulent concealment); see
also Batchelder v. Northern Fire Lites, Inc., 630 F. Supp. 1115,
1118 (D.N.H. 1986) (discussing, in a case applying New Hampshire
law, the requirement that there be a duty to disclose and citing
cases).
At the close of Invest Almaz's case, Temple-Inland
moved for judgment as a matter of law with respect to all of
Invest Almaz's fraud claims. Following a hearing, the magistrate
judge granted the motion, concluding, for each category of
allegations, that Invest Almaz had failed to introduce evidence
sufficient to establish that Temple-Inland had intentionally
concealed the information in question:
[W]ith regard to the environmental claims
there were -- the evidence is that there were
substantial negotiations as to who is to be
responsible for what. That in fact Pathex
was given and ultimately Invest Almaz was
given unfettered access to the plant and to
the property with the full ability to
observe, to test. The fact that Aries [the
environmental consultant hired by Pathex] was
late with regard to its test was because they
didn't get in and do the test before the snow
fell and they themselves asked for an
extension; in other words, there was no
intentional concealment.
With regard to obsolescence, no reasonable
jury could determine that there was an
intentional concealment of the obsolescence
-37-
where in fact there was a full right by
Pathex, which was in the equipment business,
to thoroughly inspect, nor even with respect
to Invest Almaz, where Invest Almaz sent two
engineers to inspect the equipment.
With regard to the value issue, there is no
evidence from which a reasonable jury could
determine that there was an intentional
concealment of value, particularly with
respect to all of the allegations of value,
vis-a-vis the Town of Claremont, the court
takes judicial notice of the fact that all of
those documents were public documents on
record in the Town of Claremont Tax
Assessor's office open to everyone in the
public. They were specifically referenced in
Exhibit Y [the appraisal prepared for Pathex
in December 1993]. And in fact there was no
evidence that the defendant ever represented
any value to Pathex or to Invest Almaz. They
simply negotiated a sales price.
On appeal, Invest Almaz argues, unsurprisingly, that it
introduced sufficient evidence with respect to each element of
fraudulent concealment, and each category of omission, that a
reasonable jury could have found in its favor; therefore, the
magistrate judge erred in granting judgment as a matter of law
for Temple-Inland. In addition, Invest Almaz argues that the
magistrate judge's analysis must be rejected because it proceeds
from a legal error: the magistrate judge assumed, for purposes of
his analysis, that any knowledge obtained from Temple-Inland by
Pathex was chargeable to Invest Almaz. Invest Almaz contends
that it is not chargeable with such knowledge under New Hampshire
agency law because Pathex was a “faithless agent.” Temple-
-38-
Inland, in turn, argues that Invest Almaz's faithless-agent
defense does not apply to this case and that the magistrate judge
was correct in concluding that no reasonable jury could find in
Invest Almaz's favor on the fraud claims. Because the
applicability of the faithless-agent defense is critical to our
review of the evidence, we address it first.
a. Invest Almaz's Faithless-Agent Defense
Invest Almaz’s argument that a principal is not
chargeable with knowledge obtained by a “faithless agent” relies
on Boucouvalas v. John Hancock Mut. Life Ins. Co., 5 A.2d 721
(N.H. 1939). In Boucouvalas, the defendant insurer sought to be
relieved of its obligations under a life insurance policy
procured through the fraud of its agent. The agent, in
completing paperwork for an illiterate applicant, had
deliberately omitted information the applicant provided
concerning a serious illness. When the applicant died shortly
thereafter from the same illness, the insurer argued that it was
not chargeable with knowledge of the plaintiff's illness and
therefore not bound by the policy.
The New Hampshire Supreme Court ruled for the
defendant, reversing an earlier decision, Domocaris v. Ins. Co.,
123 A. 220 (N.H. 1923), which had held that an insurer was
chargeable with knowledge of a deceitful agent. In its decision,
-39-
the Boucouvalas court cited back to pre-Domocaris precedent
holding that “the principal is not charged with the knowledge of
his agent when the latter is engaged in committing an
independent, fraudulent act on his own account, and the facts to
be imputed relate to this fraudulent act.” Brookhouse v. Union
Publ'g Co., 62 A. 219, 222 (N.H. 1905); see also Warren v. Hayes,
68 A. 193, 194 (N.H. 1907) (“The test, therefore, to determine
whether an agent's knowledge is to be imputed to his principal is
to inquire whether or not the agent was acting for the principal
when he did that in respect to which is sought to charge the
principal with his knowledge.”). The court acknowledged that
there was no evidence of wrongdoing by the applicant, but
nonetheless concluded that he (or, in this case, his beneficiary)
was entitled to no more than a refund of premiums paid. See
Boucouvalas, 5 A.2d at 724.
Although Boucouvalas has never been overruled, and has
been followed on at least one occasion, see LeClerc v. Prudential
Ins. Co. of Am., 39 A.2d 763 (N.H. 1944), we harbor some doubt
concerning its vitality and applicability to this case. In the
majority of jurisdictions, the law has evolved towards a
recognition that information given to even a fraudulent agent
should normally be imputed to the principal, unless the third
party providing the information has notice that the agent is
-40-
acting adversely or otherwise colludes with the faithless agent.
See B. H. Glenn, Insured's Responsibility for False Answers
Inserted by Insurer's Agent in Application Following Correct
Answers by Insured, or Incorrect Answers Suggested by Agent, 26
A.L.R.3d 6, 33-45 (1969 & Supp. 2000) (showing state courts to be
virtually unanimous in holding that knowledge of an insurance
agent will be imputed to insurer, despite fraud of agent, unless
the applicant has notice of the fraud); see also Restatement
(Second) of Agency § 282, cmt. d (adopting the same position as
a general principle of agency law). While the New Hampshire
Supreme Court has not yet formally adopted this view, it has
expressed clear misgivings about Boucouvalas. See Mut. Benefit
Life Ins. v. Gruette, 529 A.2d 870, 872-73 (N.H. 1987) (conceding
that the Boucouvalas rule “acts harshly as to [those] who fall
prey to devious agents” and noting public policy reasons
supporting its reversal, but concluding that factual
circumstances of the case -- including evidence of collusion
between the applicant and agent -- “[did] not furnish an
appropriate basis for returning to the rule of Domocaris”); see
also Perkins v. John Hancock Mut. Life Ins. Co., 128 A.2d 207,
208 (N.H. 1956) (questioning whether, in light of Boucouvalas,
New Hampshire insurance law “permits the issuance of a policy to
bind the insurer to the extent that reasonable person in the
-41-
position of the insured would understand that it did” but
concluding that the problem was more properly resolved by the
legislature); Taylor v. Metro. Life Ins. Co., 214 A.2d 109, 113
(N.H. 1965) (same). It also appears that Boucouvalas has been
limited to its facts by the New Hampshire Supreme Court: although
the pre-Domocaris cases to which Boucouvalas refers involved a
range of factual circumstances, we find no subsequent case
applying the rule except in the context of duplicitous insurance
agents.
Nonetheless, given our obligation in diversity cases to
“determine the rule that the state Supreme Court would probably
follow,” Moores v. Greenberg, 834 F.2d 1105, 1107 n.3 (1st Cir.
1987) (internal punctuation marks omitted), we find these doubts
to be insufficient grounds for ruling that Boucouvalas is either
invalid or inapplicable. The New Hampshire Supreme Court has not
seen fit to overrule Boucouvalas, and we cannot reasonably assume
that it would do so now, if it faced the issue directly. In
addition, we find support for Boucouvalas' holding and its
applicability to the present facts in New Hampshire's Uniform
Partnership Act (“UPA”), which states, in pertinent part:
Notice to any partner of any matter relating
to partnership affairs, and the knowledge of
the partner acting in the particular matter,
acquired while a partner . . . operates as
notice to or knowledge of the partnership,
except in the case of a fraud on the
-42-
partnership committed by or with the consent
of that partner.
N.H. Rev. Stat. Ann. § 304-A:12 (emphasis added). 21 The New
Hampshire Supreme Court looks to state partnership law in
deciding cases involving joint ventures. Miami Subs Corp. v.
Murray Family Trust, 703 A.2d 1366, 1370 (N.H. 1997). Although
this provision of the UPA has not been given an authoritative
reading by the New Hampshire Supreme Court, we find its plain
language sufficiently persuasive to outweigh our doubts
concerning the applicability of the rule of Boucouvalas.
Having accepted that Invest Almaz's “faithless agent”
defense is available as a matter of New Hampshire law, we still
must determine whether there is sufficient evidence that Pathex
was engaged in a fraud against Invest Almaz to justify its
application here. Unlike Invest Almaz, we do not consider the
issue free from dispute. While the Pathex former president,
Charles Kosa, admitted that information regarding the plant was
not conveyed to Invest Almaz, Kosa suggested that this occurred
21 In its brief, Temple-Inland points us to a second
provision of the UPA which could be read to take a different
view. This provision states in substance that each partner will
be considered an agent of the partnership whose acts bind the
partnership, unless the partner lacks authority for the act in
question “and the person with whom [the partner] is dealing has
knowledge of the fact that he has no authority.” N.H. Rev.
Stat. Ann. § 304-A:9. We think it clear that section 304-A:12,
which specifically concerns the imputation of knowledge to a
partnership, governs here.
-43-
because Pathex believed the joint venture agreement assigned it
primary responsibility for selecting, purchasing and preparing a
suitable plant. Nonetheless, we think enough evidence was
introduced to permit a reasonable jury to find that Pathex
intentionally withheld the information as part of an effort to
conceal from Invest Almaz the condition and value of the
facility. Therefore, for purposes of Temple-Inland's motion for
judgment as a matter of law, Invest Almaz should not have been
charged with knowledge of information that was never revealed to
it by Pathex.
b. Judgment as a Matter of Law
Although we find that Invest Almaz was entitled to the
benefit of its faithless-agent defense for purposes of the Fed.
R. Civ. P. 50(a) motion, this result is not conclusive on the
question of whether Temple-Inland was entitled to judgment as a
matter of law. As we read it, the magistrate judge’s ruling
rested on two distinct grounds: first, that Temple-Inland's
grants of access to Pathex and/or Invest Almaz to inspect and
conduct tests negate any reasonable inference of fraudulent
intent; and, second, that the availability of certain information
to Pathex or Invest Almaz negates the inference that there was
-44-
ultimately any concealment. 22 Invest Almaz's faithless-agent
defense plainly weakens the second rationale, but it does not
affect the first. Nor are we limited to upholding the magistrate
judge's conclusion only for the reasons actually invoked in his
ruling. E.g., Hodgens v. Gen. Dynamics Corp., 144 F.3d 151, 172
(1st Cir. 1998) (noting, in the summary judgment context, that
this court “[w]ill affirm a correct result reached by the court
below on any independently sufficient ground made manifest by the
record”); Acushnet Co. v. Mohasco Corp., 191 F.3d 69, 80 (1st
Cir. 1999) (applying the same rule in reviewing a grant of
judgment as a matter of law). We therefore proceed to the merits
of Temple-Inland's Rule 50(a) motion.
We review a grant of judgment as a matter of law de
novo, “under the same standards as the district court.” Katz v.
City Metal Co., 87 F.3d 26, 28 (1st Cir. 1996). In so doing, we
“examine the evidence and all fair inferences in the light most
favorable to the plaintiff and may not consider the credibility
of witnesses, resolve conflicts in testimony, or evaluate the
22 While the language of the magistrate judge's ruling
suggests that he viewed this evidence as undercutting
“concealment,” our reading of New Hampshire precedent suggests
that it might more properly be viewed as undermining Invest
Almaz's ability to claim justifiable reliance. Cf. Cross v.
Lake, 441 A.2d 1179, 1180 (N.H. 1982) (holding that a buyer's
knowledge of the “true state of affairs” precluded the buyer
from claiming that he relied on seller's misrepresentations
concerning the acreage of a property offered for sale).
-45-
weight of the evidence.” Id. (quoting Richmond Steel, Inc. v.
P.R. Am. Ins. Co., 954 F.2d 19, 22 (1st Cir. 1992)) (internal
punctuation marks omitted). At the same time, it remains the
responsibility of the party with the burden of proof to present
“more than a mere scintilla” of evidence in its favor; and to do
more than “rely on conjecture or speculation” in support of its
position. Katz, 87 F.3d at 28. To the contrary, “[t]he evidence
offered must make the existence of the fact to be inferred more
probable than its nonexistence.” Id. (quoting Resare v. Raytheon
Co., 981 F.2d 32, 34 (1st Cir. 1992)). We also bear in mind the
plaintiff's burden of proof at trial. See Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 252 (1986) (“[T]he inquiry involved in
a ruling on a motion for summary judgment or for a directed
verdict necessarily implicates the substantive evidentiary
standard of proof that would apply at the trial on the merits.”).
New Hampshire common law provides that fraud must be proved by
“clear and convincing proof” and “will not be implied from
doubtful circumstances.” Sheris v. Thompson, 295 A.2d 268, 271
(N.H. 1971); accord Snow v. Am. Morgan Horse Ass'n, Inc., 686
A.2d 1168, 1170 (N.H. 1997). Ultimately, we will affirm the
magistrate judge's ruling if we find that “as a matter of law,
the record would permit a reasonable jury to reach only one
conclusion as to that issue.” Katz, 87 F.3d at 28.
-46-
Because our analysis differs with respect to each
category of allegedly concealed information, we treat them
separately, employing, for simplicity, the magistrate judge's
labels.
i. Value
Invest Almaz's complaint alleges that Temple-Inland
fraudulently concealed three specific facts regarding the plant's
value: the “book value” of the Claremont OSB plant (carried in
Temple-Inland's internal records as $2.4 million); the fair
market value of the plant (calculated by Temple-Inland for tax
assessment purposes as $1.6 million); and the “fact” that Temple-
Inland could not have realized $5 million on a sale of the
equipment at auction.
We think that the trial record provided an adequate basis from
which a reasonable jury could have concluded that the alleged
“facts” were true and known to Temple-Inland, were not disclosed
by Temple-Inland to either Pathex23 or Invest Almaz, and were
material to Invest Almaz. However, we find that Invest Almaz has
presented no legally sufficient grounds for concluding that
23 Pathex eventually learned at least the market value
through its independent appraisal, a fact on which the
magistrate judge apparently relied in determining that there was
no concealment. However, there is no evidence that Pathex
passed the information up to Invest Almaz and, because of our
conclusion on the agency issue, we do not charge Invest Almaz
with this knowledge.
-47-
Temple-Inland was under any duty to reveal the information in
question.
In New Hampshire, as elsewhere, liability for
fraudulent concealment does not arise in the absence of a duty of
disclosure. Batchelder, 630 F. Supp. at 1118 (“[F]or a failure
to disclose to be actionable fraud, there must be a duty arising
from the relation of the parties to so disclose.”); Benoit v.
Perkins, 104 A. 254, 256 (N.H. 1918) (“[T]he fraudulent
concealment of known facts with intent to mislead, and which in
fact does mislead, . . . does not constitute actionable fraud,
unless there be some obligation which the law recognizes to
disclose the facts concealed.”); see also Restatement (Second) of
Torts § 551(1). Invest Almaz does not dispute this, but instead
argues that, under the circumstances of this case, Temple-Inland
acquired such a duty. Invest Almaz's first rationale is that
Temple-Inland’s invitation to representatives of the Russian
company to tour the plant, accompanied by the offer to answer
“any questions,” by itself gave rise to an obligation fully to
disclose information regarding the condition and value of the
plant. However, Invest Almaz provides no support for this
curious contention. Nor are we aware of any cases suggesting
that, simply by inviting a prospective purchaser to tour a
-48-
property, a seller assumes an obligation to volunteer its own
views as to the property's value.
Invest Almaz's second contention is that Temple-Inland
made “partial disclosures” concerning value which gave rise to a
duty of full disclosure. Of the examples of such statements
offered, only one merits discussion.24 At trial, Invest Almaz
played a videotaped deposition of Invest Almaz's president, Yurij
Zepavalov. Zepavalov testified that Viktor Tikhov – one of the
Invest Almaz engineers who toured the plant -- told Zepavalov
that he had asked tour guide Earl Taylor about the price of the
plant, but Taylor provided “no response” and, instead, “evaded
the question.” Although plainly hearsay, this statement
apparently entered the record because Temple-Inland's counsel
failed to object at the appropriate time.
Assuming, without deciding, that this statement is
appropriately part of the record for purposes of our review, we
24 The other examples of “partial disclosures” offered --
Temple-Inland's alleged descriptions of the plant as in “good
condition” and “well maintained” -- are frivolous. We do not
believe that such statements could reasonably be seen as
indicative of value and, therefore, could not create a duty of
further disclosure. Furthermore, these statements are exactly
the kind of “loose general statements made by sellers in
commending their wares” upon which purchasers are not entitled
to rely. Restatement (Second) of Torts § 542, cmt e; accord
Sipola v. Winship, 66 A. 962, 966 (1907) (noting that purchasers
are not entitled to rely on “mere general commendations or
expressions of opinion” made by a seller).
-49-
think it insufficient to support a finding that Temple-Inland
acquired a duty of disclosure with respect to value. Invest
Almaz points to no case, and we are aware of none, suggesting
that merely not answering a question, without more, creates a
duty of disclosure.25 While there is precedent in New Hampshire
case law for the proposition that a vendor offering a deceptive
opinion as to value may be liable in fraud, nothing in the
deposition testimony indicates that Taylor gave an opinion of
value,26 or, indeed, even knew the sale price of the plant.
Compare Shafmaster v. Shafmaster, 642 A.2d 1361, 1364 (N.H. 1994)
(holding that a defendant's inclusion of incorrect opinions of
value in a financial statement submitted as part of divorce
proceeding was fraudulent). We therefore conclude that Temple-
Inland had no duty to disclose the information respecting value
it is charged with concealing and that judgment as a matter of
law was appropriate with respect to these allegations.
25 We acknowledge that there are circumstances in which
silence could be deceptive, as, for example, when the party
asking the question states its own understanding as to a fact
and the respondent's silence could be taken as assent. Nothing
in the deposition testimony suggests that Tikhov understood
Taylor's response, whatever it actually was, to contain any such
implication.
26 In this context, we note that the jury also heard the
videotaped deposition of Vladimir Semkin, the other Invest Almaz
engineer on the tour. Semkin stated that he inquired as to the
price of the equipment of Taylor, and Taylor responded that he
“had no information about that.”
-50-
ii. Obsolescence
Seven of Invest Almaz's allegations of concealment
relate to the “obsolescence” issue. According to Invest Almaz,
Temple-Inland improperly failed to reveal that the plant was “not
capable of manufacturing OSB above cost in the current or
foreseeable market”; the plant was “economically and functionally
obsolete”; the plant was closed because it lost money; the plant
was “one of the oldest OSB lines in America”; the plant was
characterized by Temple-Inland's CEO as “economically not
viable”; the prior owner of the plant had gone bankrupt; and
Temple-Inland “knew as early as 1990" that the plant would “never
make money.”
We have some doubt as to whether all seven of these
allegations were seriously advanced below or are meaningfully
pressed on appeal. Nor do we think that Invest Almaz's evidence
supports the full breadth of these allegations. However, we find
evidence in the record from which a reasonable jury could infer
the truth of what we take to be the core of these allegations:
that Temple-Inland's Claremont plant was old and, at least in its
current location and configuration, unable to make a profit;27
27 Several pieces of evidence indicated that the plant's
ability to upgrade to compete was limited by the size of the
existing buildings and the site on which it was located. No
evidence was introduced concerning the equipment's ability to
operate profitably in any other location.
-51-
that its unprofitability was due in part to long-term changes in
the regulatory regime and market in which it operated, including
competition from newer, larger OSB plants able to operate with
lower costs; and that Temple-Inland closed the plant because it
was losing money.
Invest Almaz also introduced evidence generally tending
to show that information of this kind was not revealed to Pathex
or Invest Almaz by Temple-Inland.28 However, on this point Invest
Almaz's position was contradicted in part by an admission by
Vladimir Semkin. In his videotaped deposition, Semkin testified
that he was told by Earl Taylor that the plant was closed because
it was “loss-making” and “could not make a profit,” a fact that
Taylor allegedly attributed to increases in the price of
obtaining timber. In addition, the record indicates that Taylor
in fact told the Russian engineers that the plant began operation
in 1981.29
28 Here, again, it is clear that Pathex eventually
obtained much of this information through its appraisal, but
there is no evidence that Pathex reported it to Invest Almaz.
29 This fact appears in notes taken by Invest Almaz
engineer Tikhov during the tour on Tikhov's copies of written
materials distributed by Taylor at that time. These materials,
including the notes, were introduced during plaintiff's case,
although the translation of Tikhov's notes was not placed in
evidence until after Invest Almaz rested its case.
-52-
To establish the materiality of the concealed
information, Invest Almaz introduced videotaped testimony of
president Zapevalov. Zapevalov's testimony with respect to the
materiality of the plant's alleged obsolescence, however, was not
particularly helpful to Invest Almaz, as the following colloquy
indicates:
Q. Were you ever told that production
costs at the plant had exceeded the
market price for the product?
A. No, I was never been told [sic]
that.
Q. And when your representatives visited
the plant in October 1993 were they
told that?
A. No, they were not told that, but you
have to bear in mind that the
production cost in the United States
can differ from that in Russia, but
nevertheless nobody told us about the
production price and the fair market
value of the product.
Q. If you had been informed of those
facts, would it have made a difference
to you?
A. For us the most important is the
production cost in Russian conditions,
not in the United States, because we
paid [sic] differently for
electricity, for everything which
comprises the production cost.
Zapevalov Dep. p. 50-51(emphasis added). No other testimony was
introduced directly bearing on the materiality of the plant's
-53-
obsolescence to Invest Almaz, although there was witness
testimony and documentary evidence concerning the performance
expectations Invest Almaz had for the rebuilt, relocated plant.
For the reasons discussed with respect to Invest
Almaz's value claims, we do not think that Temple-Inland was
under any general duty to disclose the information regarding
obsolescence that Invest Almaz claims was concealed. It is
apparent from Invest Almaz's allegations, and, indeed, conceded
in Invest Almaz's brief, that the term “obsolescence” is meant to
refer only to the alleged inability of the equipment to produce
OSB profitably, not to any defects affecting its operation. See
Pl's. Br. at 48 (“The equipment was not obsolete in the sense
that it did not work; it was obsolete in the sense that it was
economically inefficient and could not make OSB at a competitive
price.”). Furthermore, as Invest Almaz's evidence regarding
obsolescence indicates, the unprofitability of the plant was the
result of circumstances -- such as increased energy and pollution
control costs and the development of larger, more cost-effective
plants -- external to the equipment itself. Invest Almaz has
identified no precedent, and we are aware of none, obligating a
seller as a general matter to reveal this kind of information,
which appears relevant primarily to the suitability of the
equipment for purposes and under conditions about which Invest
-54-
Almaz plainly had superior knowledge. Such a duty seems
particularly inappropriate here, where it was understood that the
equipment would be put into operation only after extensive
modification.
Invest Almaz has a stronger case that a limited duty of
disclosure arose as a result of Taylor's alleged comments to the
effect that high timber costs made the plant unprofitable. As
noted above, the evidence at trial pointed to several other
reasons why the plant could not make money. Given this, Taylor's
statements could be construed as a “partial disclosure” requiring
further clarification concerning the reasons why the plant
closed. See, e.g., Dawe v. Am. Univ. Ins. Co., 417 A.2d 2, 4
(N.H. 1980) (“[P]artial disclosure may give rise to a duty to
fully disclose when the partial disclosure, standing alone, is
deceptive.”).
Ultimately, however, we do not think that this line of
argument could have succeeded. First, it is not clear that
Invest Almaz actually contends on appeal that Temple-Inland's
duty to disclose obsolescence arose in this way.30 Instead,
Invest Almaz appears to rely on the same general grounds already
considered and rejected as creating any duty of disclosure with
30 It seems somewhat clearer that Invest Almaz did raise
this argument in its opposition to Temple-Inland's motion for
judgment as a matter of law.
-55-
respect to the “value” allegations. We consider it telling that
Invest Almaz introduced no evidence in its affirmative case
indicating that the information Taylor gave was actually false,
that Taylor intended to
mislead the Russian representatives by his statement, or that
anyone else at Temple-Inland knew what Taylor told Invest Almaz.31
In addition, we do not believe that a reasonable jury
could find on this record “clear and convincing” evidence that
the information Temple-Inland arguably came under a duty to
disclose was material to Invest Almaz. As Zepavalov's deposition
testimony plainly states, Invest Almaz's concern was with the
ability of the equipment to operate profitably in its new
location. Yet none of the reasons for the plant's
unprofitability introduced as part of Invest Almaz's case are
ultimately germane to that question. Zepavalov specifically
acknowledges that the costs of production, which were the primary
reasons for the plant's unprofitability in the United States,
would be completely different in Russia. It is also far from
self-evident that, in Russia, the plant would be directly
31 This is particularly surprising because Taylor was
later called as a witness for Temple-Inland and Invest Almaz's
counsel cross-examined him at some length about the possibility
that he might have been biased in the information he gave Invest
Almaz. Had Invest Almaz wanted to put Taylor's intention at
issue, we think it would not have rested its own case without
attempting to develop this testimony.
-56-
competing with the same kinds of higher-volume facilities
apparently dominating the North American market.32 Invest Almaz
introduced no evidence suggesting that parallels could be drawn
between Russian and North American conditions, nor did it
introduce any other evidence from which it could be inferred that
the equipment could not be operated at a profit in Russia, or
that it could not be rebuilt to meet the standards called for in
the joint- venture agreement. Absent such evidence, we think any
argument that the improperly concealed information was material
to Invest Almaz would rest on sheer speculation.
For the foregoing reasons, we think judgment as a
matter of law was appropriately granted with respect to the
obsolescence allegations.
iii. Environmental Problems
Invest Almaz's final allegation of fraud asserts that
Temple-Inland concealed “significant environmental problems at
the plant, including the presence of hazardous and non-hazardous
waste, chemical pollution, and radioactive material.” Like the
magistrate judge, who characterized the environmental issue as a
“red herring,” we view this allegation with particular
skepticism. While there were clearly environmental problems at
32 In fact, Zepavalov testified that, at least in 1993,
there were no OSB plants operating in all of Russia.
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the plant -- including both historical noncompliance with
environmental regulations and present contamination of site soils
and sediments -- we find it hard to discern how those problems
were relevant to the equipment purchase Invest Almaz hoped to
accomplish.33 Invest Almaz does not appear to argue that the
equipment itself was contaminated. Nor does Invest Almaz point
to evidence suggesting that the plant was incapable of being
operated in a non-polluting manner. Indeed, as we read the
record, the environmental issues were only evaluated so that
Pathex could decide whether or not to purchase the property on
which the plant was built, an aspect of the transaction unrelated
to the joint venture’s purposes.
Furthermore, we think that the magistrate judge was
plainly correct in concluding that, in view of the extensive
interactions between Pathex and Temple-Inland regarding the
environmental issues, no reasonable jury could find that Temple-
Inland intentionally concealed environmental information in order
33 We acknowledge that Invest Almaz president Zepavalov
testified in his deposition that the environmental problems at
the plant would have been of importance to him. However, this
does not automatically establish the materiality of this
information as a matter of law. If it were objectively
unreasonable for Zepavalov to consider such information “in
determining his choice of action in the transaction,”
Restatement (Second) of Torts § 538(1)(a), materiality would
require a showing that Temple-Inland knew, or had reason to
know, that Zepavalov nonetheless viewed the information as
critical to his decision, id. § 538(1)(b).
-58-
to defraud either Pathex or Invest Almaz. See Hall v. Merrimack
Mut. Fire Ins. Co., 13 A.2d 157, 160 (N.H. 1940) (fraud requires
a “deliberate falsehood . . . made for the purpose or with the
intention of causing the other party to act upon it”).
Uncontradicted evidence in the record shows that the existence of
environmental problems at the facility and the parties'
respective obligations for analyzing and resolving those problems
were discussed throughout the negotiations between Pathex and
Temple-Inland, beginning, at latest, by mid-July 1993 -- before
Pathex entered into the option agreement with Temple-Inland and
well before Invest Almaz signed the joint-venture agreement. It
is also beyond dispute that Pathex fully understood the
importance of undertaking its own environmental assessment to
determine the full scope of the environmental problems at the
plant,34 and there is no evidence that Temple-Inland sought to
impede the assessments performed for Pathex by Aries.35
Furthermore, the record indicates that Pathex and Temple-Inland
34 In fact, Invest Almaz's attorney elicited
uncontradicted testimony from Temple-Inland General Counsel
Vorpahl indicating that responsibility for environmental
investigation was a critical component of the successive drafts
of the option agreement and Asset Purchase Agreement, and that
Temple-Inland took the position throughout that Pathex should
make an independent investigation.
35 To the contrary, the contents of the assessments make
clear that Earl Taylor, at least, provided significant
information to Aries.
-59-
continued to discuss the results of these environmental surveys,
the progress of Temple-Inland's cleanup efforts, and the impact
of environmental issues on the final shape of the Asset Purchase
Agreement, throughout the option period. In our view, this
uncontradicted evidence of extensive, ongoing discussions
regarding environmental matters, begun before any agreement was
signed and culminating in an unfettered opportunity to discover
the true state of affairs prior to purchasing the property,
precludes any reasonable jury from finding that Temple-Inland
intentionally concealed any environmental problems the plant may
have had.36
Invest Almaz's arguments against this result are
unpersuasive. Invest Almaz first suggests that giving Pathex
notice of the environmental problems and the opportunity to learn
more was not sufficient to avert a finding of fraudulent
concealment. Instead, Invest Almaz argues, Temple-Inland was
obliged to disclose the full environmental history of the plant
36 We acknowledge that Invest Almaz sought to develop, and
to some minor extent succeeded in developing, evidence to the
effect that Temple-Inland may have had a motive to “cut corners
and shade the truth in order to sell.” For example, Invest
Almaz elicited testimony indicating that Temple-Inland was
incurring substantial carrying costs on the facility. In the
face of the overwhelming evidence indicating that Temple-Inland
did reveal the existence of environmental problems at the plant,
we do not think Invest Almaz's circumstantial and speculative
evidence of a possible “motive” creates a trialworthy dispute
concerning Temple-Inland's intent.
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and to do so from the outset. Invest Almaz offers no
precedential support for this proposition, which strikes us as
wholly at odds with established business practice. While we can
certainly imagine circumstances in which notice and an
opportunity to inspect would be inadequate -- as when the party
providing notice intentionally misdirects the other party or
prevents it from completing an investigation, see Bergeron v.
Dupont, 359 A.2d 627, 629 (N.H. 1976) (plaintiff's own
investigation not a defense to misrepresentation when the
investigation was restricted by bad weather and by defendant's
request that it be curtailed) -- we think it more generally the
case that accepting such an opportunity prevents a party from
later claiming that it acted in reliance on an adverse party's
representations. See Restatement (Second) of Torts § 547(1)
(“[T]he maker of a fraudulent misrepresentation is not liable to
another whose decision to engage in the transaction that the
representation was intended to induce . . . is the result of an
independent investigation by him.”); see also Sipola, 66 A. at
966 (noting that, although there is generally no duty of
purchaser to investigate the truthfulness of representations made
-61-
by a seller, such a duty arises when the purchaser has “knowledge
of his own, or of any facts which would excite suspicion”).37
Invest Almaz's second argument is that, notwithstanding
Temple-Inland's above-board dealings with respect to Pathex,
Temple-Inland remains liable vis á vis Invest Almaz, because it
failed to disclose the environmental problems at the plant during
the tour and Invest Almaz relied on that omission to its
detriment by signing the joint-venture agreement. Under this
theory, Temple-Inland's disclosures to Pathex are not evidence of
Temple-Inland's lack of fraudulent intent, because Temple-Inland
was engaged in a separate fraud against Invest Almaz
specifically. The problem with this contention is that it
presumes a degree of coordination between Pathex and Temple-
Inland for which there is simply no evidence. To conclude that
Temple-Inland intentionally defrauded Invest Almaz alone, a jury
would seemingly have to find that Temple-Inland withheld the
environmental information knowing that Pathex also had not and
would not reveal it; knowing that Invest Almaz was about to sign
37 Also relevant in this context is the fact that both
parties were experienced business entities, clearly having the
capacity to evaluate the information available to them. See
Smith v. Pope, 176 A.2d 321, 324 (N.H. 1961) (noting that, in
determining “whether the plaintiffs were justified in accepting
the defendant's statements at face value” the court applies “an
individual standard, based upon [the plaintiffs'] own capacity
and knowledge”).
-62-
a deal committing itself to this plant (although the option clock
still had time to run); and expecting and intending that Invest
Almaz would rely on these omissions. Although Invest Almaz's
briefs assert that such collusion occurred, the evidence
presented at trial does not begin to support this elaborate chain
of inferences.
Indeed, we think it questionable whether a reasonable
jury could conclude that Temple-Inland even withheld the
existence of environmental concerns from Invest Almaz during the
tour. The packet of written information given to Invest Almaz's
representatives by Earl Taylor specifically mentions that the
plant equipment includes gauges containing radioactive materials;
that the plant used phenol formaldehyde as a binder; and that
Temple-Inland contracted with an entity named Jet Line for
environmental services relating to hazardous waste, oil in the
ponds and drums of waste at the facility. This information would
appear sufficient to put Invest Almaz on notice and therefore to
defeat any claim of reliance. See Sipola, 66 A. at 966. At the
very least, we consider the fact that Taylor handed out this
information fatal to any argument that Temple-Inland intended to
conceal the plant's environmental problems during the tour.
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Given the foregoing, we conclude that judgment as a
matter of law was properly granted with respect to this final
group of allegations of fraudulent concealment.
C. Aiding and Abetting
Invest Almaz's final claim of error concerns the
instructions given the jury with respect to the knowledge element
of the tort of aiding and abetting a breach of fiduciary duty.
The magistrate judge, following the majority of jurisdictions
recognizing this tort, concluded that Invest Almaz had to prove
that Temple-Inland had actual knowledge that Pathex was breaching
a duty to Invest Almaz. Invest Almaz argued below, and presses
on appeal, that a constructive knowledge instruction should have
been given.
It is undisputed that, as the magistrate judge found,
the New Hampshire Supreme Court has yet to expressly consider
whether to adopt the tort of aiding and abetting a breach of
fiduciary duty. It was therefore the magistrate judge's duty to
determine whether New Hampshire's Supreme Court would recognize
the tort and how that Court would define the elements of the
cause of action. See Moores, 834 F.2d at 1107. The magistrate
judge, in a ruling that has not been appealed, concluded that the
New Hampshire Supreme Court would recognize the tort, and would
adopt a version incorporating the principles of aiding and
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abetting liability set forth in the Restatement (Second) of
Torts. See Restatement § 876(b) (“For harm resulting to a third
person from the tortious conduct of another, one is subject to
liability if he . . . knows that the other's conduct constitutes
a breach of duty and gives substantial assistance or
encouragement to the other so to conduct himself . . . .”).
Following other jurisdictions relying on these principles, he
held that the tort would require Invest Almaz to prove three
elements: (1) a breach of fiduciary obligations by Pathex; (2)
knowing inducement or participation in the breach by the Temple-
Inland; and (3) damages to Invest Almaz as a result of the
breach. E.g., S & K Sales Co. v. Nike, Inc., 816 F.2d 843, 847-
48 (2d Cir. 1987) (applying New York law); Spinner v. Nutt, 631
N.E.2d 542, 546 (Mass. 1994).
With respect to the “knowledge” element, the magistrate
judge noted that, in the majority of jurisdictions recognizing
the tort, actual knowledge of the breach of fiduciary duty is
required. Concluding that the New Hampshire Supreme Court would
adopt the majority rule on this issue, he instructed the jury as
follows:
In the context of this claim, to act
knowingly means to act with actual knowledge.
This means that Invest Almaz must prove that
Temple-Inland actually knew two things: That
Pathex owed a fiduciary duty to Invest Almaz,
and that Pathex was breaching that duty. It
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is not enough for Invest Almaz to show that
Temple-Inland would have known these things
if it had exercised reasonable care. However
. . . it is not required to show that Temple-
Inland acted with an intent to harm Invest
Almaz.
Invest Almaz's position, below and on appeal, is that the
magistrate judge should instead have followed a Second Circuit
case employing a constructive knowledge standard. See Diduck v.
Kaszycki & Sons Contractors, Inc., 974 F.2d 270, 283 (2d. Cir.
1992) (holding that “[a] defendant who is on notice that conduct
violates a fiduciary duty is chargeable with constructive
knowledge if a reasonably diligent investigation would have
revealed the breach”). Invest Almaz further argues that the
magistrate judge's error entitles it to a new trial on the aiding
and abetting count. Because Invest Almaz properly preserved its
objection to the actual knowledge standard at all appropriate
points below, its request for a new trial will be considered
under the harmless-error standard of Fed. R. Civ. P. 61 if the
actual knowledge instruction is determined to be incorrect. See
Beatty v. Michael Bus. Mach. Corp., 172 F.3d 117, 120 (1st Cir.
1999).
We find no error and therefore do not reach the
harmless error analysis. As is clear from Diduck itself, the
constructive knowledge standard adopted in that case reflected
unique factual and policy considerations not relevant here. The
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Diduck rule was developed by the Second Circuit as part of a
federal common law right of action against non-fiduciaries
arising under the Employee Retirement Income Security Act of
1974, 29 U.S.C. §§ 1101 et seq. as amended (ERISA). See id.
Following ERISA precedent, the court looked to trust case law and
provisions of the Restatement of Trusts in devising its
constructive knowledge rule. See Chemung Canal Trust Co. v.
Sovran Bank/Maryland, 939 F.2d 12, 16-18 (2d Cir. 1991)
(concluding that Congress intended the courts to “fill any gaps
in [ERISA] by looking to traditional trust law principles”); see
also Diduck, 974 F.2d at 283 (noting Restatement rule that a
defendant may be chargeable with notice either as to fiduciary's
status as trustee or that trustee is committing breach of trust)
(citing Restatement of Trusts § 326, cmt. b); Id. (noting
Restatement rule that a defendant on notice is chargeable with
constructive knowledge if a reasonable investigation would have
revealed the breach) (citing Restatement of Trusts § 297, cmt.
a). It is readily apparent that Diduck's constructive knowledge
holding has not been considered, even by courts in the Second
Circuit, to alter the actual knowledge standard applied in other
contexts. See, e.g., Kolbeck v. LIT Am., Inc., 939 F. Supp. 240,
246 (S.D.N.Y. 1996), aff'd, 152 F.3d 918 (2d Cir. 1998)
(unpublished table decision) (distinguishing Diduck and holding
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that, in cases of aiding and abetting a breach of fiduciary duty
arising under New York common law, the actual knowledge standard
remains in force). We find nothing in Invest Almaz's unsupported
arguments remotely adequate to convince us that this unique rule
would be applied by the New Hampshire Supreme Court to this case.
IV.
Having invested over $6 million in a transatlantic deal
that ultimately came to naught, Invest Almaz's effort to recover
some part of what it lost is understandable. However, we find no
error in the magistrate judge's rulings and concur that the facts
of this case ultimately do not support a judgment against this
defendant on the theories proposed. The judgment of the district
court is affirmed in all respects.
It is so ordered.
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