Roche v. Royal
This text of Roche v. Royal (Roche v. Royal) is published on Counsel Stack Legal Research, covering Court of Appeals for the First Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.
Bluebook
Roche v. Royal, (1st Cir. 1997).
Opinion
USCA1 Opinion
United States Court of Appeals
For the First Circuit
____________________
No. 96-1748
JOHN C. ROCHE and MARK A. DIRICO,
Plaintiffs, Appellants,
v.
THE ROYAL BANK OF CANADA and DELOITTE & TOUCHE, INC.,
Defendants, Appellees.
No. 96-1932
THE ROYAL BANK OF CANADA and DELOITTE & TOUCHE, INC.,
Defendants, Cross-Appellants,
v.
JOHN C. ROCHE and MARK A. DIRICO,
Plaintiffs, Cross-Appellees.
____________________
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Patti B. Saris, U.S. District Judge] ___________________
____________________
Before
Selya, Circuit Judge, _____________
Coffin, Senior Circuit Judge, ____________________
and Lynch, Circuit Judge. _____________
____________________
Vincent M. Amoroso, with whom John J. O'Connor and Peabody & ___________________ __________________ _________
Arnold were on brief, for plaintiffs. ______
Mark A. Berthiaume, with whom Gary R. Greenberg, Louis J. Scerra, __________________ __________________ ________________
Jr., Jonathan D. Cohen, and Goldstein & Manello, P.C. were on brief, ___ _________________ __________________________
for defendants.
____________________
April 1, 1997
____________________
LYNCH, Circuit Judge. The plaintiffs, Boston- LYNCH, Circuit Judge. ______________
area businessmen John Roche and Mark DiRico, invested in a
fish farm in Prince Edward Island, Canada. The venture
failed, and they sued the court-appointed receiver which sold
them the farm and the bank which had originally financed the
project. A jury found against plaintiffs on their claims of
common law fraud and misrepresentation for failure to meet
their burden of showing proximate cause. The district court,
initially finding plaintiffs' allegations actionable under
Mass. Gen. Laws ch. 93A ("chapter 93A"), found after trial
that defendants had committed unfair and deceptive trade
practices, but that their offending acts did not occur
"primarily and substantially" in Massachusetts, as required
by chapter 93A. Plaintiffs recovered nothing. Defendants'
motion for attorneys' fees was also denied. Both parties
appeal on the chapter 93A issue, and defendants appeal from
the denial of attorneys' fees. We affirm.
I.
We recite the facts as the jury and district court
could have found them. Cambridge Plating Co. v. Napco, Inc., _____________________ ___________
85 F.3d 752, 756 (1st Cir. 1996). "Where specific findings
are lacking, we view the record in the light most favorable
to the ruling, making all reasonably supported inferences."
United States v. McCarthy, 77 F.3d 522, 525 (1st Cir. 1996). _____________ ________
-2- 2
The story starts in February 1987, when Aquacare
A.S., a Norwegian firm, conducted a study for its subsidiary
Seasprings Farms Ltd., on the viability of a land-based fish
farm in Prince Edward Island, Canada ("PEI"). Aquacare
prepared a prospectus (the Aquacare I report), which
presented general information about the biological and
technical aspects of the proposed operation. The prospectus
also contained financial projections and asserted that the
production capacity of the contemplated facility would be
131.8 tons of fish in the first year of operation and 360
tons annually thereafter.
The Royal Bank of Canada financed the construction
of the farm, which was operated by a firm called Marine
Harvesting, Ltd. ("Marine"). Fish were first introduced into
the facility in December 1987, but there were construction
delays and the plant was not completed until June 1988.
Things went badly from the start. The fish did not grow as
fast as anticipated and had unexpectedly high mortality
rates. By October 1988, the fish had not yet reached market
size (4 lbs), as expected.
In October, Cleve Myers, Marine's President,
retained Aquatech Systems, A.S., another Norwegian
aquaculture firm, to perform an independent study of the
farm's problems. Myers wanted to know, among other things,
how many tons of fish the farm was capable of producing. Dr.
-3- 3
Michael Smith, a biologist from Aquatech, came to the farm on
October 30 and spent three days making observations,
conducting tests, and speaking with employees. Dr. Smith was
not shown the Aquacare I report, but the Aquacare operating
manuals were made available to him. The result of Dr.
Smith's analysis was a forty-four page report (the Aquatech
report), dated November 18, 1988.
The Aquatech report criticized the design of the
farm. The report stated that "until experience over a fully
operational annual cycle has been gained," the farm could
produce, at best, only 200 tons of fish per year. Dr.
Smith's report also made several recommendations for
improving production. For instance, it recommended that a
Free access — add to your briefcase to read the full text and ask questions with AI
USCA1 Opinion
United States Court of Appeals
For the First Circuit
____________________
No. 96-1748
JOHN C. ROCHE and MARK A. DIRICO,
Plaintiffs, Appellants,
v.
THE ROYAL BANK OF CANADA and DELOITTE & TOUCHE, INC.,
Defendants, Appellees.
No. 96-1932
THE ROYAL BANK OF CANADA and DELOITTE & TOUCHE, INC.,
Defendants, Cross-Appellants,
v.
JOHN C. ROCHE and MARK A. DIRICO,
Plaintiffs, Cross-Appellees.
____________________
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Patti B. Saris, U.S. District Judge] ___________________
____________________
Before
Selya, Circuit Judge, _____________
Coffin, Senior Circuit Judge, ____________________
and Lynch, Circuit Judge. _____________
____________________
Vincent M. Amoroso, with whom John J. O'Connor and Peabody & ___________________ __________________ _________
Arnold were on brief, for plaintiffs. ______
Mark A. Berthiaume, with whom Gary R. Greenberg, Louis J. Scerra, __________________ __________________ ________________
Jr., Jonathan D. Cohen, and Goldstein & Manello, P.C. were on brief, ___ _________________ __________________________
for defendants.
____________________
April 1, 1997
____________________
LYNCH, Circuit Judge. The plaintiffs, Boston- LYNCH, Circuit Judge. ______________
area businessmen John Roche and Mark DiRico, invested in a
fish farm in Prince Edward Island, Canada. The venture
failed, and they sued the court-appointed receiver which sold
them the farm and the bank which had originally financed the
project. A jury found against plaintiffs on their claims of
common law fraud and misrepresentation for failure to meet
their burden of showing proximate cause. The district court,
initially finding plaintiffs' allegations actionable under
Mass. Gen. Laws ch. 93A ("chapter 93A"), found after trial
that defendants had committed unfair and deceptive trade
practices, but that their offending acts did not occur
"primarily and substantially" in Massachusetts, as required
by chapter 93A. Plaintiffs recovered nothing. Defendants'
motion for attorneys' fees was also denied. Both parties
appeal on the chapter 93A issue, and defendants appeal from
the denial of attorneys' fees. We affirm.
I.
We recite the facts as the jury and district court
could have found them. Cambridge Plating Co. v. Napco, Inc., _____________________ ___________
85 F.3d 752, 756 (1st Cir. 1996). "Where specific findings
are lacking, we view the record in the light most favorable
to the ruling, making all reasonably supported inferences."
United States v. McCarthy, 77 F.3d 522, 525 (1st Cir. 1996). _____________ ________
-2- 2
The story starts in February 1987, when Aquacare
A.S., a Norwegian firm, conducted a study for its subsidiary
Seasprings Farms Ltd., on the viability of a land-based fish
farm in Prince Edward Island, Canada ("PEI"). Aquacare
prepared a prospectus (the Aquacare I report), which
presented general information about the biological and
technical aspects of the proposed operation. The prospectus
also contained financial projections and asserted that the
production capacity of the contemplated facility would be
131.8 tons of fish in the first year of operation and 360
tons annually thereafter.
The Royal Bank of Canada financed the construction
of the farm, which was operated by a firm called Marine
Harvesting, Ltd. ("Marine"). Fish were first introduced into
the facility in December 1987, but there were construction
delays and the plant was not completed until June 1988.
Things went badly from the start. The fish did not grow as
fast as anticipated and had unexpectedly high mortality
rates. By October 1988, the fish had not yet reached market
size (4 lbs), as expected.
In October, Cleve Myers, Marine's President,
retained Aquatech Systems, A.S., another Norwegian
aquaculture firm, to perform an independent study of the
farm's problems. Myers wanted to know, among other things,
how many tons of fish the farm was capable of producing. Dr.
-3- 3
Michael Smith, a biologist from Aquatech, came to the farm on
October 30 and spent three days making observations,
conducting tests, and speaking with employees. Dr. Smith was
not shown the Aquacare I report, but the Aquacare operating
manuals were made available to him. The result of Dr.
Smith's analysis was a forty-four page report (the Aquatech
report), dated November 18, 1988.
The Aquatech report criticized the design of the
farm. The report stated that "until experience over a fully
operational annual cycle has been gained," the farm could
produce, at best, only 200 tons of fish per year. Dr.
Smith's report also made several recommendations for
improving production. For instance, it recommended that a
higher proportion of fresh water be pumped into the tanks,
for purposes of both temperature control and salinity
control. This suggestion deviated from the specifications in
the Aquacare operating manuals. The 200-ton projection was
premised on the assumption that the recommended changes would
be implemented.
Meanwhile, Osler, Inc., one of Marine's two fifty-
percent shareholders, was in receivership, and A.S. Bergens
Skillingsbanken, the other fifty-percent shareholder, was
refusing to inject additional capital into the venture.
On November 30, Myers turned the keys to the farm
over to Lou McGinn, the Loan Officer in charge of the project
-4- 4
at the Royal Bank, and requested that the farm be placed in
voluntary receivership. Myers stated that without operating
capital he was unable to care for the inventory or pay the
staff. He also stated that he had "received a consultant's
report regarding the production capabilities of the plant
which indicate [sic] that the facility is not viable as it ___
presently is financed." McGinn stated that Myers had told
him that he received "a consultant's report" which indicated
that "the plant was capable of producing only approximately
200 tons of product per year as opposed to the 360 tons of
product per year upon which its financing and viability had
been initially contemplated and established." In a letter of
January 4, 1989, to McGinn, Myers wrote that:
after the [Aquatech] report indicated an
expected tonnage, which was not viable, I
received confirmation from the directors
and major shareholders to advise the bank
and request a receiver. Both they and I
considered it wrong to continue
operations with this information in our
possession.
McGinn understood from Myers that the Aquatech report was one
of the factors that led Marine to decide not to inject any
more money into the project and to opt for receivership.
McGinn informed his supervisor of the development, and the
-5- 5
supervisor noted in a memo that "apparently a recent
study . . . placessomequestion ontheviabilityof theproject."1
At the Royal Bank's request, the Supreme Court of
PEI appointed Deloitte & Touche2 as receiver of Marine's
assets. Karen Cramm, a partner in Deloitte's Halifax, Nova
Scotia office, was in charge of the receivership. Cramm took
instructions on the handling of the assets from the Royal
Bank, specifically from McGinn, as well as from the PEI
court. The Royal Bank was the sole secured creditor of
Marine, with a $ 2.8 million note outstanding. The
expectation was that none of Marine's other creditors would
get anything out of the sale of the assets; there would be a
shortfall.
____________________
1. More than a year later, on February 26, 1990, McGinn
prepared a "Bad and Doubtful Debt Report" on the loan to
Marine, which was somewhat contradictory to his earlier
understanding. The report stated, in relevant part:
While the funds in question did not
materialize as anticipated we were not
aware of a developing concern as to the
overall viability of the operation,
seemingly based on the findings of a
study which indicated growth rates
originally expected for the species
involved were significantly overstated
and maybe by as much as 50%.
Accordingly, Skillingsbanken A/S were not
prepared to participate further in any
manner and requested that a Receiver be
appointed immediately.
2. Deloitte & Touche was known as Touche Ross Ltd. at the
time the initial events leading to this litigation occurred.
-6- 6
Cramm immediately took possession of Marine's
assets and reviewed the company's financial records. Farm
employees were terminated as employees of Marine and rehired
as employees of Deloitte, as receiver for Marine. Deloitte
decided to sell the farm by means of a public tender. Cramm
immediately began preparing an information package which
could be sent to potential investors. Around this time Myers
showed Cramm both the Aquacare I report and the Aquatech
report. Cramm read both reports. She included neither of
the reports in the information package, though later she
would offer the Aquacare I report alone to prospective
purchasers.
Deloitte placed advertisements in various
newspapers, including the Boston Globe, describing the farm ______ _____
and inviting interested readers to contact Deloitte for
further information. The ads stated that the "business is
intended to be sold on a going-concern basis."
In early December, after learning that Marine had
become insolvent, Aquacare contacted Cramm and told her that
it wanted access to the plant to conduct a review of plant
operations. Aquacare had heard about the Aquatech report,
which criticized Aquacare's design and operational
specifications. Cramm agreed to Aquacare's request.
Aquacare then issued two unsolicited reports, the Aquacare II
report on December 15 and the Aquacare III follow-up report
-7- 7
on December 20, attempting to rebut the Aquatech report.
Aquacare II reviewed plant operations and praised the design
and operational specifications of the plant. Aquacare II re-
asserted that 360-ton production "can be achieved without
problem," provided there was proper stocking of fingerlings
(young fish), and recommended a fingerling acquisition plan.
Aquacare II also blamed Marine's management for the plant's
failures. Aquacare III explicitly refuted the Aquatech
report. Aquacare did not bill Deloitte for these reports.
Meanwhile, John Roche, a Massachusetts real estate
developer, had been seeking a business opportunity in
aquaculture. After reading the Globe ad, he called Cramm from _____
his home in Massachusetts. The next day she sent him the
information package. Roche discussed the farm with two of
his business associates, Mark DiRico (the chief engineer of a
packaging supply business) and George Call, who both
expressed an interest. Roche and Call decided to visit the
facility in Canada. On January 3 or 4, 1989, they toured the
facility with Cramm. During this visit, Roche asked Cramm
why the previous investors had failed. She responded that
they had run out of money. Roche and Call also met with
Cliff Yorston, the Plant Manager, who told them that some of
the fish were ready for sale and that all the plant needed
was an infusion of new capital.
-8- 8
Cramm offered the visitors a copy of the Aquacare I
report. Before receiving it, they were required to sign a
disclaimer, which stated, among other things, that they were
aware that Deloitte "had not, in any way, attempted to verify
the information contained herein." Cramm stated that she
offered the Aquacare I report to prospective purchasers
because "it was an informative package that included a layout
of the plant facility" and "it talked about, in general, the
aquaculture operation." She explained that the disclaimer
was intended to protect Deloitte against claims involving any
inaccuracies in the information contained in the report, such
as the financial projections, growth charts, and
profitability analysis. She had not reviewed that
information and had no opinion as to its accuracy.
Cramm admits she did not offer Roche and Call a
copy of the Aquatech report, but claims it was among the
financial statements that Roche and Call were invited to
view.
Roche and Call next met with McGinn at the Royal
Bank of Canada to discuss financing. McGinn, like Cramm
before him, told the two Americans that the farm went into
receivership because the previous investors had run out of
money.
Roche and Call returned to Massachusetts, where
Roche showed the Aquacare I report to DiRico. During the
-9- 9
next week, Roche had several telephone conversations with
McGinn about potential financing. McGinn recommended that
Roche retain a local Canadian lawyer, Scott MacKenzie, and a
local Canadian accountant, Stan MacPherson, to assist him in
dealing with various government agencies. Roche did so.
On January 11, Roche and Call, this time
accompanied by DiRico, met with McGinn and Cramm at the Royal
Bank in PEI. DiRico asked McGinn for "sales figures"; DiRico
claims that McGinn gave him a copy of the Aquacare I report,
telling him that "all the figures are in here." DiRico says
he was not asked to sign a disclaimer. Cramm denies that
DiRico was given a copy of the report at this meeting.
DiRico asked McGinn about the plant's troubles; McGinn
responded that mismanagement was to blame.
Roche and his associates also went to see the farm.
Cliff Yorston, the Plant Manager, pulled a large fish from
one of the tanks and told the two visitors that he had a
whole tankful of similar "beauties" which could be sold for
$ 3.75 a pound in Boston. Roche and his associates planned
to generate operating capital for the plant through the
immediate sale of inventory.
Roche and his partners made an offer of $ 2.9
million the next day, subject to Royal Bank financing. But
Cramm, after securing the Royal Bank's support, rejected the
offer, instead choosing to accept a lower all-cash offer
-10- 10
($ 1.4 million) from a group led by Hirsch Spiegleman. The
Spiegleman group's offer, unlike the Roche group's offer, did
not require Royal Bank financing.
On or around January 17, Cramm told Roche that his
offer had been rejected. McGinn also asked Roche if Roche's
group would still be interested in the event that the
Spiegleman deal fell through.
After his bid was accepted, Spiegleman requested a
copy of the Aquatech report (which he referred to as the "200
ton report"). The record does not reveal how Spiegleman,
unlike Roche, knew about the Aquatech report. Cramm informed
Aquacare of Spiegleman's request and asked for permission to
give him a copy of the Aquacare II and Aquacare III reports
at the same time.
In mid-February 1989, the Spiegleman deal
collapsed. The Roche group hoped to take over the Spiegleman
offer rather than going through the process of submitting a
new bid. Seeking financing, Roche and his partners met with
Amy Hunter, a loan officer at Boston Private Bank & Trust
Company (Boston Private). Roche gave Hunter a copy of the
Aquacare I report. Hunter understood that Roche was
presenting the report as his business plan. Roche told
Hunter that the fish farm went into receivership because the
previous owners had run out of money. Roche also told Hunter
-11- 11
that he planned to raise operating capital by immediately
selling fish.
Hunter next called Cramm and McGinn to confirm what
Roche had told her. Cramm told Hunter that the farm's
equipment was state-of-the-art and all that was needed was
the right management. McGinn echoed these thoughts, adding
that Roche would get half his investment back in the first
three months without even having to invest in any new fish.
Hunter asked McGinn if he knew of any downside risks to the
farm or whether he had any projections for the farm. McGinn
responded that he did not know any downside risks other than
bad management and that Roche's ideas sounded good to him.
He did not offer any other projections. On February 28,
Boston Private approved a loan of $ 1.2 million to Roche,
secured by property Roche owned in the Boston area.
Cramm, however, decided not to allow Roche to take
over Spiegleman's offer. Instead, she re-tendered the farm
to all potentially interested buyers, including Roche.
Consequently, she edited the original information packet and
sent it out on March 1 to everyone who had expressed an
interest in the farm.3
____________________
3. The only substantive change made in the packet was the
addition of an express statement, in light of a disagreement
with the Spiegleman group, that the assets that were for sale
did not include an investment tax credit belonging to Marine.
The packet also mentioned that the Spiegleman deal had fallen
through.
-12- 12
On March 2, Cramm received from Yorston, the farm's
Plant Manager, a copy of a recent memorandum written by
Aquacare (the Aquacare IV report). This memorandum had been
prepared by Aquacare for its subsidiary, Seasprings. It
accidentally fell into Yorston's hands because Aquacare,
intending to send it by fax to Seasprings, sent it to the
fish farm's fax number. The Aquacare IV report contained
scathing criticism of Deloitte's management of the farm.
Aquacare asserted that Deloitte, by attempting to maintain
the status quo pending sale, was actually reducing the value
of the farm's assets. For instance, several tons of fish had
matured past marketability. Aquacare believed that Deloitte
was wasting money by feeding these unmarketable fish.
Additionally, Deloitte had failed in a timely fashion to
purchase fingerlings to restock the farm and future harvests
would be lower. Aquacare believed that under Deloitte's
management the value of the inventory as well as the farm's
1989 and 1990 earning potential were decreasing daily.
Aquacare implicitly disavowed its own earlier production
capacity projections, made in the Aquacare I report and
reasserted in the Aquacare II report, at least as to 1989 and
1990.4
____________________
4. McGinn explained the decision not to buy any fingerlings,
despite Aquacare's recommendations that fingerlings be
purchased in a carefully prescribed manner at specific times,
as part of defendants' strategy of maintaining the status quo
pending the sale of the assets without investing any new
-13- 13
Roche and DiRico visited the farm again on March 8.
Roche told Yorston that if his bid was accepted he would need
to start selling fish immediately to raise working capital.
Yorston replied that he had $ 150,000 worth of fish ready for
shipment to Boston. Roche also believed that, once the farm
was purchased, McGinn was prepared to provide working capital
in the form of a Royal Bank operating line. On March 10,
Roche and his partners offered $ 1.4 million. This offer was
accepted on March 13.
Roche called Yorston on March 13 to inquire again
about the prospects of immediate sales. Yorston faxed a
response to Roche. The cover sheet said, "Here are some
projected cash flows for 1989." The attached projections
anticipated sales in March of $ 154,000 and total sales for
the year of almost $ 2.5 million.5 These projections had not
been prepared by Deloitte or by Marine, but by the Spiegleman
group. However, someone had obliterated the identifying
heading at the top of the page so that, when the projections
were sent by fax, the source of the projections was not
identified to Roche. Yorston had earlier told Roche that he
____________________
money in the farm. This remained their strategy after the
Spiegleman deal fell through and it became clear that the
assets would not be sold until late March.
5. There is no indication as to whether these figures were
supposed to be in US currency or in Canadian currency.
-14- 14
was not authorized to release any information about the plant
without permission from Cramm.
On March 17, Scott MacKenzie, the Canadian attorney
hired by Roche to help buy the farm, faxed two newspaper
articles to Roche, along with a brief note saying that Roche
might find the attached articles "interesting." One of the
articles discussed Marine's collapse, quoting Myers as saying
"[t]he Aquatech report was devastating and the only option
open to Marine Harvesting Ltd. was to request that the bank
place a receiver on site." Roche filed the articles away
without reading them.
On March 20, the Canadian court approved the sale
of the farm. Roche formed a corporation in Canada,
International Marine Fisheries, Ltd. (IMFL), to make the
purchase. Roche instructed Yorston to fill orders for
shipment to Boston. Yorston was able to fill the first few
orders of 2 to 4 pound fish, but the buyers in Boston
complained that the fish were too small. Yorston was unable
to fill the first order for 4 to 6 pound fish. He then
resigned. Scott Taylor, formerly the farm's Chief Biologist,
took over Yorston's position, but he was also unable to fill
these orders. In April, Taylor told Roche that the larger
fish were all unmarketable because they were too old and that
the other fish were too small for sale. Taylor predicted
that the smaller fish would be four pounds by June and could
-15- 15
be sold then. By June, the smaller fish still had not grown
to four pounds. Taylor was fired. The new Plant Manager,
Richard Gallant, recommended, in order to cut expenses and
see if the fish would grow faster, that the fish be placed in
cages in the bay. This was done in July.
Roche and his partners injected cash of their own
into the enterprise to save it and also took out an operating
line of credit from the Bank of Nova Scotia in the amount of
$ 500,000. Roche personally guaranteed the loan. During the
summer, Roche and DiRico bought Call's share.
Roche came to think the fish farm was a failure.
He began negotiating with a local veterinary college which
was interested in buying the farm for research purposes. He
hired Deloitte to help him set up this deal. Stan MacPherson
and Cleve Myers, both recently hired by Deloitte, worked on
the project.
In September 1989, Roche was at the fish farm.
Tipped off by a former secretary, he found the Aquatech
report in a desk drawer. Attached to the report was a 1988
note from Cleve Myers, the former president of Marine, to a
prospective fish dealer. The note said that the farm:
was placed in receivership Friday
afternoon. The fish have not grown fast
enough, as you know, plus I have received
a specialist's report from Norway stating
that we can only grow 200 tons annually
(just enough to lose one million dollars
each year).
-16- 16
After reading the report and the attached note Roche
concluded that he had been defrauded.
In November 1989, the Bank of Nova Scotia called
the loan and demanded that Roche, as personal guarantor, make
payment to the bank. He did not do so. The fish farm closed
in December, and went into receivership in February. The
Bank of Nova Scotia sued Roche and DiRico on the defaulted
loan.
Meanwhile, IMFL, the plaintiffs' Canadian
corporation, was dissolved in May 1990. Roche and DiRico
brought this action against Deloitte and the Royal Bank in
November 1990.
II.
Roche and DiRico sued Deloitte and the Royal Bank
on two theories: common law fraud and misrepresentation, and
"unfair or deceptive acts or practices in the conduct of any
trade or commerce," under Mass. Gen. Laws ch. 93A, 2.
The common law counts were tried before a jury.
Since the defendants did not consent to a jury determination
of the chapter 93A claim, that claim was decided by the
district judge. The jury returned a verdict for the Royal
Bank on all the common law counts. As for the common law
claims against Deloitte, the jury found that Roche and DiRico
had proved there were negligent misrepresentations, but that
the plaintiffs were ninety-nine percent negligent compared to
-17- 17
the one percent negligence of Deloitte; therefore the claim
foundered on proximate cause grounds and there was no
recovery. The district court ruled that defendants had
engaged in misrepresentations contrary to the standard of
chapter 93A,6 but that the actionable conduct did not take
place "primarily and substantially within the commonwealth"
of Massachusetts, as chapter 93A requires. Mass. Gen. Laws
ch. 93A, 11. The court thus ruled in favor of defendants
on the issue of chapter 93A liability.
Plaintiffs, while defending the district court's
predicate rulings, appeal the court's ultimate decision on
chapter 93A liability. They assert that the deception
occurred primarily and substantially in Massachusetts.7
Defendants, by contrast, defend the "primarily and
____________________
6. Defendants argue on appeal that this ruling violates the
Seventh Amendment in light of the jury verdict on the common
law claims. We need not reach the issue since we affirm the
chapter 93A judgment for defendants on other grounds.
7. Plaintiffs argue that the court's "primarily and
substantially" decision is in tension with its earlier
decision to apply Massachusetts law to the dispute instead of
Canadian law. Defendants make essentially the same argument
in reverse -- that the latter decision was correct and should
trump the former. These arguments miss the mark. The choice
of law test and the "primarily and substantially" test,
though similar in many respects, are not identical. That a
judge should reach opposite results in applying these two
tests in a single case is no sign of error. See, e.g., ___ ____
Bushkin Assocs., Inc. v. Raytheon Co., 473 N.E.2d 662 (Mass. _____________________ _____________
1985) (applying Massachusetts law but concluding that the
deception occurred primarily and substantially outside
Massachusetts); cf. Burnham v. Mark IV Homes, Inc., 441 ___ _______ _____________________
N.E.2d 1027, 1031 n.9 (Mass. 1982).
-18- 18
substantially" ruling, but challenge a number of the district
court's predicate rulings. Specifically, defendants argue
that Roche and DiRico are not the real parties in interest
because the deception, as alleged, was perpetrated on the
Canadian corporation established by Roche and DiRico to
purchase and operate the fish farm, not on the two men as
individuals. They also argue that, under forum state
(Massachusetts) conflicts principles, Canadian law, rather
than Massachusetts law, should have been applied to the suit.
Finally, they argue that, even under Massachusetts law,
plaintiffs had not successfully shown actionable conduct
under 93A. Because we affirm the ruling below on the ground
that the conduct was not primarily and substantially in
Massachusetts, there is no reason to address defendants'
other arguments in any detail.
The question of whether the deception occurred
primarily and substantially in Massachusetts is one of law,
which we review de novo. Compagnie de Reassurance d'Ile de __ ____ __________________________________
France v. New England Reinsurance Corp., 57 F.3d 56, 90 (1st ______ _____________________________
Cir. 1995); Clinton Hosp. Ass'n v. Corson Group, Inc., 907 ____________________ ___________________
F.2d 1260, 1264 (1st Cir. 1990). This review, however,
cannot be conducted in a vacuum. We first determine exactly
what constituted the unfair or deceptive acts. ____
The district court found that six acts or omissions
constituted actionable deception on the plaintiffs. Whether
-19- 19
a certain act or omission (or cluster of acts or omissions)
is actionable under chapter 93A is a question of fact.
Brennan v. Carvel Corp., 929 F.2d 801, 813 (1st Cir. 1991); _______ ____________
USM Corp. v. Arthur D. Little Sys., Inc., 546 N.E.2d 888, 897 _________ ___________________________
(Mass. App. Ct. 1989). Review is for clear error. After
defining the deception, the district court then employed the
pragmatic, functional analysis spelled out by this court in
Clinton Hospital, 907 F.2d at 1266, in order to ascertain _________________
whether the deception occurred primarily and substantially in
Massachusetts.8 Neither party challenges the district
court's methodology in determining the "primarily and
substantially" question by examining only the specific acts
(or omissions) of misconduct, instead of, say, by examining
the larger context of the parties' dealings. We therefore
use the same methodology. See also Gilleran, The Law of ___ ____ ___________
Chapter 93A 3:15, at 32 & n.59.1 (1995 Supp.) ("The ____________
relevant wrongful conduct to be considered for purposes of
personal jurisdiction under 93A is that conduct which
violated 93A.") (citing cases).
____________________
8. As a procedural matter, courts of appeals may review the
"primarily and substantially" issue at various stages of the
litigation: e.g., after trial, see Clinton Hospital, 907 ____ ___ _________________
F.2d at 1261; Makino, U.S.A., Inc. v. Metlife Capital Credit ____________________ _______________________
Corp., 518 N.E.2d 519 (Mass. App. Ct. 1988); or on appeal _____
from summary judgment, see Goldstein Oil Co. v. C.K. Smith ___ __________________ __________
Co., 479 N.E.2d 728 (Mass. App. Ct. 1985). Here, the case ___
comes to us after trial, with specific factual findings by
thedistrictjudgeon whatexactlyconstitutedtheacts ofdeception.
-20- 20
The district court found that the following six
acts/omissions constituted the deception:
i. Cramm's response on January 4, 1989,
to a question from plaintiffs about the
problems of the fish farm, indicating
that the previous operators had run out
of money, but omitting that the investors
withdrew after reading the Aquatech
report;
ii. McGinn's statement to the same
effect;
iii. Cramm's failure to offer plaintiffs
a copy of the Aquatech report when she
offered them a copy of the Aquacare I
report;
iv. Cramm's failure, after March 1,
1989, to disclose to plaintiffs the
Aquacare IV report, which showed that
Aquacare no longer stood by the
projections it had made in the earlier
Aquacare I report;
v. McGinn's statement that buyers would
be able to sell fish immediately to
generate operating capital; and
vi. McGinn's failure to tell Hunter
about the Aquatech report, after offering
his opinion as to the viability of the
farm, when she asked if he had any more
information.9
Both parties challenge the district court's
findings on what constituted the deception. Plaintiffs urge
____________________
9. The district court excluded from consideration the
deceptive oral statements made by Yorston to the plaintiffs
and the deceptive fax sent by Yorston to Roche because the
plaintiffs had failed to plead Yorston's allegedly fraudulent
conduct with the requisite specificity. Plaintiffs protest
this ruling. We need not reach the issue as it is immaterial
to the outcome.
-21- 21
us to give a broader construction, while defendants complain
that the district court saw deception where there was none.
We have reviewed the record and are mindful that there is
conflicting testimony on many points. The judge saw the
witnesses on the stand and had the opportunity to weigh their
credibility. See Fed. R. Civ. P. 52(a). ___
Defendants argue that the district court erred in
finding that defendants deceptively failed to disclose the
Aquatech report. Defendants assert that the non-disclosure
claim is an impossibility here because plaintiffs had
knowledge prior to buying the farm about the very document
the defendants are accused of failing to disclose, the
Aquatech report. This knowledge, the defendants essentially
argue, is based on either of two alternate theories. First,
defendants assert that plaintiffs had imputed knowledge of
the report: their agent MacKenzie knew about the Aquatech
report through a newspaper article and that knowledge could
be imputed to the plaintiffs.10 Second, defendants assert
that the plaintiffs had constructive knowledge: MacKenzie had
faxed a copy of the article to Roche (a week after
plaintiffs' offer was accepted), and Roche's knowledge could
be assumed, without relying on an agency theory (although
____________________
10. Defendants rely on DeVaux v. American Home Assurance ______ ________________________
Co., 444 N.E.2d 355, 358 (Mass. 1983), and several other ___
cases for this agency theory.
-22- 22
Roche did not read the article until long after).11 Even
assuming these theories are valid, defendants have still
failed to demonstrate reversible error. Prior to the
closing, plaintiffs at most knew of the existence of the _________________
Aquatech report. Defendants' deception here was in not
providing plaintiffs with a copy of the report given that __________
plaintiffs had been provided with a copy of the rival ___________
Aquacare I report. Under these facts the district court did
not err in finding that defendants deceptively failed to
disclose the Aquatech report.
Defendants also argue it was clear error for the
district court to conclude that the farm's original investors
pulled out because of the Aquatech report, a conclusion upon
which the non-disclosure claim rests. Defendants are correct
that the record does not reveal that the investors pulled out
solely because of the unfavorable Aquatech report. However, ______
the report clearly played a major role in the investors'
decision to place the plant in receivership. At the very
least, Cramm and McGinn knew that the previous investors
pulled out just after receiving the Aquatech report, and that
the report played a large role in this decision. Myers wrote
McGinn on January 4, 1989, saying that both the directors and
____________________
11. Defendants cite Chandler v. Atlas Gen. Indus., 215 F. ________ _________________
Supp. 617, 618-19 (D. Mass. 1963), for the proposition that a
plaintiff "cannot close his eyes to the obvious and then
claim to be deceived."
-23- 23
the major shareholders thought it was wrong to continue
operations after receiving the information in the Aquatech
report as to the expected tonnage. There is no clear error.
Plaintiffs, in turn, challenge certain findings of
non-deception as clearly erroneous. They argue that the ___
advertisement placed by Cramm was deceptive because it
described the farm as a "going concern." A "going concern"
is "[a]n enterprise which is being carried on as a whole and
with some particular object in view" or "an existing solvent
business, which is being conducted in the usual and ordinary
way for which it was organized." Black's Law Dictionary 691 ______________________
(6th ed. 1990). The district court determined that the use
of the term "going concern" here was not deceptive.
Plaintiffs rely entirely on Dr. Smith's findings in the
Aquatech report in asserting on appeal that the farm was not
a "going concern." In Dr. Smith's opinion, say plaintiffs,
the farm's pumping system was incapable of operating properly
at optimum levels and the farm was, as a general matter, not
state-of-the-art.
Plaintiffs' charge of error fails on two grounds.
First, Dr. Smith is one aquaculture expert among several
whose conflicting views about the farm became known in this
case. Indeed, this is the very reason his report should have
been available to the plaintiffs: the plaintiffs had been
given a different report by a competing aquaculture firm
-24- 24
which expressed a far rosier view of the farm's operations
and production capacity. While the plaintiffs' non-
disclosure claim is rooted in the variety of opinions
available about the viability of the farm, their "going
concern" argument presents Dr. Smith's opinion as the single
truth. But most damaging to plaintiffs, Dr. Smith's report
never suggested, let alone stated, that the farm was not a
"going concern." His report indicates only his belief that
the farm was more poorly designed, and consequently a riskier
investment, than its designers thought.12
Finally, that the farm ultimately failed (and thus,
presumably could not properly have been described as a "going
concern" at some point during its decline) is not proof that
it was doomed to failure at the time the ad was placed, at
the start of the receivership. Indeed, implicit in the
plaintiffs' overall case is a claim that their venture might
not have failed if the receiver had managed the farm better
during the term of the receivership and if the selling price
better reflected the actual value of the assets. Precisely
because the value and production capacity of the farm were so
hotly disputed at trial, the judge did not commit clear error
in finding that the farm was a "going concern" at the time
____________________
12. Plaintiffs also claim that the farm was not a "going
concern" because it fell short of Amy Hunter's definition of
"going concern." Amy Hunter's definition of "going concern"
need not have been adopted by the court.
-25- 25
the Globe ad was placed. The farm's ultimate failure does _____
not change this.13
These factual findings lead to the question whether
the deception occurred primarily and substantially in
Massachusetts. Contrary to the standard burden of proof on
jurisdictional questions, here the burden is on defendants to __________
show that their misconduct occurred primarily and
substantially outside Massachusetts. Mass. Gen. Laws ch. _______
93A, 11; Compagnie de Reassurance d'Ile de France, 57 F.3d ________________________________________
at 90; see Gilleran, supra, 3:16, at 65. This is because ___ _____
" 11 provides an exemption from 93A liability, available as
a defense, rather than a jurisdictional prerequisite to
suit." Kansallis Fin. Ltd. v. Fern, 40 F.3d 476, 481 (1st ___________________ ____
Cir. 1994). The district court's conclusion that defendants
satisfied this statutory burden is one of law, reviewed de __
novo. Compagnie de Reassurance d'Ile de France, 57 F.3d at ____ _________________________________________
90; Clinton Hospital, 907 F.2d at 1264. ________________
In Clinton Hospital, this court read the sparse _________________
body of Massachusetts precedent as support for a pragmatic,
functional approach for determining whether actionable
misconduct occurs primarily and substantially in
Massachusetts. The Clinton Hospital court distilled the _________________
____________________
13. Similarly, plaintiffs' assertions that the two
information packets were deceptive also fail. These arguments
bootstrap on the argument about the ad, since the packets,
say plaintiffs, are deceptive because they describe the farm
as a "going concern."
-26- 26
approach down to three basic factors: (1) where defendant
committed the deception; (2) where plaintiff was deceived and
acted upon the deception; and (3) the situs of plaintiff's
losses due to the deception. Id. at 1265-66. The district ___
court, applying the Clinton Hospital factors to this case, _________________
reasoned that the deception here occurred primarily and
substantially in Canada.
This court has previously recognized that the first
factor is the least weighty of the three factors. Compagnie _________
de Reassurance d'Ile de France, 57 F.3d at 90; Clinton _________________________________ _______
Hospital, 907 F.2d at 1265-66. The district court was aware ________
of this and ruled that the first factor weighed against the
plaintiffs because most of the defendants' misrepresentations
and deceptive acts were committed in Canada. This is plainly
correct. Indeed, the district court understated the point:
all the misrepresentations occurred in Canada. Nevertheless, ___
plaintiffs argue on appeal that the "clear preponderance" of
defendants' deceptive conduct occurred in Massachusetts.
This argument, however, is premised on a certain set of acts
which the district court did not consider part of the
deception. Specifically, plaintiffs assert that the Boston ______
Globe ad and the two information packets were deceptions _____
which defendants committed in Massachusetts. But the
district court did not err in finding that the ad and the
packets were not misleading.
-27- 27
As to the non-disclosure of the Aquatech report and
the Aquacare IV report, there is a metaphysical dilemma in
ascertaining where this occurred. The very problem is that
disclosure did not occur. The district court read Clinton ___ _______
Hospital as support for the proposition that non-disclosure ________
occurs where the defendant who fails to disclose is located.
This was obviously Canada. But Clinton Hospital does not ________________
answer this question. Where the defendants' obligation to
disclose certain documents arose out of their voluntary
disclosure of other documents, and where the parties'
dealings were fairly evenly split between two places, it is
most reasonable to say that the non-disclosure occurred
equally in both places. However, since all the actual
misrepresentations, as detailed above, were made by the
defendants in Canada, the first Clinton Hospital factor still ________________
weighs in favor of defendants.14 The district court
concluded, and we agree, that the bulk of the defendants'
unfair and deceptive acts and omissions were in Canada.
The second Clinton Hospital factor requires an _________________
analysis of where the plaintiffs received and acted upon the
deceptive or unfair acts or practices. As the district court
properly recognized, this factor, though framed by the
____________________
14. That some of the misrepresentations, while made in
Canada, were received in Massachusetts, will be considered
with respect to the second Clinton Hospital factor, but is ________________
not relevant here.
-28- 28
Clinton Hospital court as a single factor, really requires ________________
two distinct inquiries.
As to where the plaintiffs received the deception,
the district court concluded that it was primarily Canada.
In coming to this decision, the court declined to consider
the misleading statements made by McGinn to Hunter during
their telephone conversation because the district court
believed Hunter "was not acting as an agent of the plaintiffs
when she received the misrepresentation, and there is no
evidence she relayed any of the misrepresentations to the
plaintiffs." Plaintiffs complain the court erred in not
including this telephone conversation as a deception. This
is an arguable issue, but we resolve it against plaintiffs.
In terms of strict agency law, Hunter was acting for Boston
Private, not for plaintiffs, when she made the call. There
is no evidence that Hunter told McGinn or Cramm that she was
calling on Roche's behalf or that she would transmit the
information to Roche. Thus, while there was a deception of
Hunter, it was not of plaintiffs. As to the district court's
second rationale -- that no misrepresentations were conveyed
by Hunter to plaintiffs -- it is inapplicable on these facts.
McGinn concealed from Hunter the very information which,
Hunter testified, she would have relayed to Roche if McGinn _____ ____
had been more forthcoming.
-29- 29
The only other misrepresentation received in
Massachusetts was the Yorston fax, which, under the district
court's own evidentiary rulings, may be considered in this
analysis. On the other hand, there were three misleading
statements made by the defendants and received by the
plaintiffs in Canada during the plaintiffs' initial visits
there. And, as discussed above, the defendants' failure to
disclose was, for these purposes, received by the plaintiffs
equally in Massachusetts and Canada, as the parties' overall
dealings were evenly divided between those two places.
Therefore, while the plaintiffs received the deception in
both places, we agree with the district court that slightly
more of it was received in Canada.15
The second Clinton Hospital factor also requires us ________________
to examine where plaintiffs acted upon the deception.
Indeed, in Clinton Hospital, this court recognized that "the ________________
critical factor is the locus of the recipient of the
deception at the time of reliance." Clinton Hospital, 907 _________________
F.2d at 1265-66; see also Compagnie de Reassurance d'Ile de ___ ____ __________________________________
France, 57 F.3d at 90. Under varying circumstances this may ______
or may not be the same place as the place where the plaintiff
____________________
15. As with the first Clinton Hospital factor, plaintiffs _________________
urge us to frame the deception broadly enough to encompass
the description of the farm as a "going concern" in the
Boston Globe ad and in the two information packets, all of ______ _____
which plaintiffs obviously received in Massachusetts. For
reasons expressed above, we will not do so.
-30- 30
received the deception. Here, the district court concluded
that the plaintiffs' actions in reliance were evenly divided
between Massachusetts, where they negotiated a loan secured
by Massachusetts properties, and Canada, where they hired a
lawyer and accountant and formed a Canadian corporation to
purchase the farm, and that this sub-factor thus favored
neither party.
The district court thus concluded that the two-
faceted second factor, like the first factor, weighed in
favor of Canada, and consequently in favor of the defendants.
We agree.
The third Clinton Hospital factor is the location ________________
of the loss. The parties advance radically different
conceptions of the loss here. Plaintiffs assert that the
loss was the loss of the Massachusetts property that secured
the Boston Private loan and that was ultimately foreclosed on
when the plaintiffs defaulted on the loan. Defendants
conceive of the loss as the loss of the money which was
invested in the farm in Canada.
The district court adopted the plaintiffs'
definition. The court's reasoning was heavily influenced,
perhaps even mandated, by its earlier ruling on the scope of
the damages which plaintiffs would be allowed to seek in this
action. In that earlier ruling, the court rejected
defendants' argument that the plaintiffs as individuals were
-31- 31
not the real parties in interest in this case by defining the
alleged losses narrowly, allowing plaintiffs to seek recovery
only of losses they incurred personally in capitalizing the
corporation and not those losses suffered by the corporation
in Canada. The district court felt obligated, for the sake
of consistency, to use the same conception of the loss in
this context. The court thus concluded that this third
factor favored the plaintiffs. We agree.
The district court balanced the three factors and
found that defendants -- in whose favor the first two factors
weighed -- had met their burden of proving that the deception
had occurred primarily and substantially outside
Massachusetts. Although the pragmatic, functional analysis
is not necessarily limited to the three factors, it is
significant that two of the three identified factors weigh in
favor of the defendants here. Cf. Central Mass. Television, ___ _________________________
Inc. v. Amplicon, Inc., 930 F. Supp. 16, 27 (D. Mass. 1996) ____ ______________
("[W]hen 'place of injury' is the only factor weighing in
favor of a claimant, the admonition of Massachusetts courts
that liability under chapter 93A is not to be imposed lightly
is particularly relevant.").
III.
Defendants moved, after trial, for attorneys' fees
in the sum of $ 865,000. The district court, in a written
memorandum, denied this motion. Defendants appeal.
-32- 32
The district court first noted the dispute between
the parties over whether United States or Canadian law should
apply to the fee-shifting claim. Then, assuming arguendo ________
that Canadian law applied, as defendants urged, the court
interpreted Canadian law to grant judges "absolute and
unfettered" discretion in attorneys' fees claims. Exercising
this discretion, the district court determined that an award
of fees would be "inequitable" because of defendants'
intentional misconduct, and it denied the motion.
Defendants base their argument -- one wholly based
on Canadian substantive law -- on the underlying premise that
Canadian substantive law applies to the entire dispute
between the parties. They make no argument that they are
entitled to fees under Massachusetts law. The district
court, however, rejected the defendants' choice of law
position, applying Massachusetts law to the plaintiffs'
chapter 93A claim. The court consulted Canadian law in
considering, and disposing of, the claim for the sake of
argument only. It is unnecessary to resolve the choice of
law issue, as the denial of attorneys' fees was, under
Canadian law, well within the trial court's discretion given
the circumstances of this case.
Defendants unsuccessfully argue that the district
court overestimated the degree of discretion enjoyed by
Canadian courts in the fee-shifting context. Under Canadian
-33- 33
law, "[a] successful litigant has by law no right to costs."
Orkin, The Law of Costs 202.1, at 2-3 (2d ed. 1993).16 __________________
"Although [the successful litigant] may have a reasonable
expectation of receiving [costs], this is subject to what
some cases have termed the court's absolute and unfettered
discretion to award or withhold costs." Id. This discretion ___
is "to be exercised according to the circumstances of each
particular case." Id. ___
Defendants also argue that the court abused its
discretion by basing its denial of fees on its finding that
defendants' conduct was violative of chapter 93A. They
claim that Massachusetts law is irrelevant to Canadian
attorney fee determinations and thus that the district judge
erred in considering conduct that was violative of
Massachusetts law. Defendants misapprehend the district
court's reasoning. The point is that their conduct was
wrongful, not that it violated a particular statute. In ________
denying the motion, the court noted that "defendants acted
intentionally to withhold material information from
plaintiffs." Chapter 93A was merely the lens through which
the court examined defendants' conduct. Certainly, under the
broad discretion Canadian law accords judges in attorney fee
____________________
16. The term "costs," as used in Canadian law, encompasses
attorneys' fees. See id. 201, at 2-1. ___ ___
-34- 34
determinations, the district judge was entitled to consider
this misconduct.
Defendants prevailed on plaintiffs' chapter 93A
claim because they successfully asserted that the misconduct
occurred primarily and substantially outside Massachusetts.
Their motion for attorneys' fees was denied because the
district court, exercising its discretion, believed it would
be inequitable to award fees to parties whose wrongful
conduct had been established at trial. It was entirely
proper, in this context, for the district judge to consider
defendants' intentional misconduct in deceiving the
plaintiffs as a circumstance militating against an award of
fees.
IV.
For the reasons expressed above, the judgment of
the district court in favor of defendants and the denial of
defendants' post-trial motion for attorneys' fees are both
affirmed. Parties to bear their own costs. ________
-35- 35
Related
Kansallis Finance Ltd. v. Fern
40 F.3d 476 (First Circuit, 1994)
United States v. McCarthy
77 F.3d 522 (First Circuit, 1996)
Cambridge Plating Co. v. Napco, Inc.
85 F.3d 752 (First Circuit, 1996)
Central Massachusetts Television, Inc. v. Amplicon, Inc.
930 F. Supp. 16 (D. Massachusetts, 1996)
Makino, U.S.A., Inc. v. Metlife Capital Credit Corp.
518 N.E.2d 519 (Massachusetts Appeals Court, 1988)
Bushkin Associates, Inc. v. Raytheon Co.
473 N.E.2d 662 (Massachusetts Supreme Judicial Court, 1985)
DeVaux v. American Home Assurance Co.
444 N.E.2d 355 (Massachusetts Supreme Judicial Court, 1983)
Goldstein Oil Co. v. C.K. Smith Co.
479 N.E.2d 728 (Massachusetts Appeals Court, 1985)
USM Corp. v. Arthur D. Little Systems, Inc.
546 N.E.2d 888 (Massachusetts Appeals Court, 1989)
Brennan v. Carvel Corp.
929 F.2d 801 (First Circuit, 1991)
Cite This Page — Counsel Stack
Bluebook (online)
Roche v. Royal, Counsel Stack Legal Research, https://law.counselstack.com/opinion/roche-v-royal-ca1-1997.