USCA1 Opinion

United States Court of Appeals

United States Court of Appeals
For the First Circuit
For the First Circuit
____________________
No. 94-1617
INDUSTRIAL GENERAL CORPORATION,
Plaintiff, Appellee,
v.
SEQUOIA PACIFIC SYSTEMS CORPORATION,
Defendant, Appellant.
____________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Richard G. Stearns, U.S. District Judge]
___________________
____________________
Before
Cyr and Stahl, Circuit Judges,
______________
and DiClerico, District Judge.*
______________
____________________
Stanley W. Wheatley
____________________

with whom

Gordon & Wise was

______________

on brief

appellant.
Walter J. Connelly
___________________
brief for appellee.

with whom

Lyne, Woodworth & Evarts

__________________________

was

____________________
January 11, 1995
____________________
_____________________
*Of the District of New Hampshire, sitting by designation.

STAHL,
STAHL,

Circuit
Judge.
Circuit
Judge.
_______________

Corporation's

("IGC")

("Plastek"),

supplied

Electronics

("Moog") for

Moog was assembling for

("Sequoia").

parts,

contract

and violation

Following a

subsidiary,
molded

Plastek

plastic

use in electronic

parts

Plastek

to pay Plastek

sued Sequoia
of

Mass. Gen.

alleging
L.

General

Corporation
to

Moog

voting machines

Sequoia Pacific Systems

After Moog failed

supplied

Industrial

Corporation
$80,100 for
breach

ch. 93A,

of
11.

seven-day trial, the jury returned a verdict for

Sequoia

on the

verdict on the
"unfairly."

breach of

contract claim.

93A claim,

it found that

In

an advisory

Sequoia had

The district court eventually

acted

agreed with the

advisory finding and further held that Sequoia had breached a

fiduciary duty

it owed to

Plastek on the 93A claim.

Plastek and entered

judgment for

Because we find that

no fiduciary

relationship existed between Plastek and Sequoia,

the court's

we reverse

chapter 93A judgment.1

I.
I.
__
FACTUAL BACKGROUND AND PRIOR PROCEEDINGS
FACTUAL BACKGROUND AND PRIOR PROCEEDINGS
________________________________________

In
computerized
sell

to

Sequoia

1984,

Sequoia

began

electronic voting

local election
Associates,

to

design

machines which

boards.
partnership

During
and

and

develop

it hoped

that same
one

of

to

year,

Sequoia's

____________________
1. The
appeal.

breach of

contract claim
-22

is not

at issue

in this

stockholders, had explored the possibility of acquiring IGC's

predecessor-in-interest,
Though the

National,

Sequoia Associates-Walco deal

because of the
had

Walco

become

Inc.

ultimately failed,

acquisition negotiations, Sequoia

familiar

produced molded

with Walco's

plastic parts.

machines would use plastic

("Walco").

Associates

Plastek

division, which

Recognizing

that the voting

parts, Sequoia Associates advised

Sequoia of Plastek's molding abilities.

The introduction was

fortuitous, as Sequoia was under time constraints to complete

the project and had been unable to locate a suitable supplier
for the needed plastic parts.
Commencing in mid-1985, Sequoia and Plastek entered
into

series of

develop prototype

contracts

providing

molds and, later, produce

for

use in the voting machines

and

Moog

number

entered into

of prototype

these agreements,
prototype
the

transactions

project.

agreements

voting

molds

are not

Meanwhile, Sequoia
to

Plastek

prototype

in dispute.

assemble a

In connection

Sequoia paid Plastek

and

would

prototype parts

for Moog

machines.

Sequoia instructed

parts to Moog.

prototype

that Plastek

parts

Later,

with

to ship

some

in full for
and

these

Plastek produced

production molds, for which Sequoia also paid in full.

In

the latter

part

of 1985,

Sequoia decided

to

contract with a manufacturer to assemble the Sequoia-designed

voting machines.

Sequoia would then purchase the machines on

-33

"turn-key" basis,2 thus relieving it of both the burden of

carrying the inventory of parts required for assembly and the

burden

of

assembly itself.

manufacturing
("Momentum").

contract

Moog a

contract for

least 5,000 machines.

Moog

to

Momentum

Moog sued Sequoia,

earlier prototype-assembly
award

Sequoia

a contract

awarded the

initial

Technologies,

Inc.

claiming that one of their

contracts contained a
an actual

promise to

production run

of at

In settlement, Sequoia agreed to award

to manufacture

500 machines

with Momentum

manufacturing the balance of Sequoia's requirements.

Moog's

finances

though the extent of

was

disputed
of

director,

who

Edmund

developed

a "gut

at

this

period

were shaky,

Sequoia's knowledge of Moog's condition

at trial.

testimony

during

The district

Lonergan,

court

Sequoia's

trial

testified by

feeling"

that Moog

credited the

former technical

deposition
was not

that

he

"financially

strong

enough

[settlement]

to

manufacture

the

units

per

our
his

agreement

with them."

Lonergan alerted

Sequoia.

James

Sequoia's

superiors

at

financial

officer, testified that

flow

all

problem and

that he

Larkin,

he knew Moog

agreed to

a billing

chief

had a casharrangement

designed to improve Moog's cash situation.

____________________
2. Under a turn-key arrangement, an assembler contracts to
produce a product for a buyer that is ready to operate at the
"turn of a key."
-44

Sequoia informed Plastek that the machines would be

assembled by
production

contractors
parts

assemblers.

were

Complying

and that
to

be

Plastek's agreement

made

with this

directly

with

directive, both

for
those

Moog and

Momentum contracted directly with Plastek and other suppliers

for the voting machine parts.
In

June

and July

1986,

Moog

issued to

Plastek

purchase

orders

for

production

acknowledgement of the orders

the parts and

parts.3

to Moog.

shipped them to

Plastek

sent

Plastek manufactured

Moog on a

net 30 day

basis.

Plastek invoiced Moog directly and the invoices stated, "Sold

to Moog."

The

Moog account
check

on

shipments were carried on Plastek's

receivables.

Moog, nor

did

Plastek never
any

books as

conducted a credit

Plastek official

inquire

of

Sequoia about Moog's financial situation or creditworthiness.

After the
things

began to

behind

on its

determined

Moog-Sequoia

deteriorate
production

that Moog would

contract and,

settlement was

at Moog.

schedule.

place,

Moog quickly
Eventually,

be unable to

in September 1986, requested

all work-in-progress to Momentum.

in

fell

Sequoia

timely perform its

Moog to transfer

Sequoia paid Moog in

full

____________________
3. About this time, Momentum also issued purchase orders to
Plastek.
Plastek shipped the parts to Momentum and Momentum
paid the invoices for them in full.
-55

for

its

work-in-progress, including

the

amount

Moog owed

Plastek for the production parts.

Moog, however, never paid Plastek.

Plastek

sought

to collect its unpaid balance from Moog with no success.

November 1986, well after

the work-in-progress transfer

taken

place, Plastek

Moog.

By early 1987, Moog was insolvent.

Plastek

notified

responsible

alerted Sequoia

Sequoia

for the

that

unpaid Moog

passed since Plastek

In

it

of its

holding

balance.

had shipped and

problems with

In February

was

had

Five

1987,
Sequoia

months had

invoiced its parts

to

Moog.
In 1989,
the present

action in

recovery for
Gen. L. ch.

93A,

11.

with

Sequoia removed

discovery,

for summary

held a seven-day jury

of Mass.

the case to federal

in diversity

the district

judgment.

The

trial in February 1994.

instructed the jury

Court seeking

and for violation

jurisdiction grounded

After

Sequoia's motion

court

Massachusetts Superior

breach of contract

district court
citizenship.

Plastek, through its parent, IGC, brought

to answer questions

court

of

denied

district court
The district
on a special

verdict.
The jury

returned a verdict in

the breach of contract claim.

claim,
"failing

the

jury

found

to disclose

With regard to the chapter 93A

that Sequoia

what

Sequoia's favor on

it knew

acted

"unfairly"

about Moog's

in

financial

-66

stability."
acts

were deceptive

willful.
jury,

However,

or that

not find that

its

actions were

The district court, essentially

found that

Plastek was

dependence" relative
"unfairly

the jury did

in a

to Sequoia

F. Supp.

district

entered

$80,100.69 plus costs.

agreeing with the

position of

"trust and

the fact that

had acted
Moog was an

Industrial Gen. Corp. v. Sequoia Pac.

______________________
____________

Sys. Corp., 849

___________
court

knowing and

and that Sequoia

in failing to disclose

unreliable customer."

Sequoia's

820, 824
judgment

(D. Mass.
in

favor

1994).

The

of

for

IGC

This appeal followed.

II.
II.
___
DISCUSSION
DISCUSSION
__________

Sequoia

argues that

clear error in three

respects:

the district

court committed

by finding (1)

that Sequoia

and Plastek had a fiduciary

(2) that
it

did

or quasi-fiduciary relationship;

Sequoia possessed knowledge of

not

disclose

to Plastek;

and

material facts that

(3)

that Sequoia's

failure to disclose material facts regarding Moog's financial

condition was

causally related to Plastek's

reciting the standard

argument.

of review, we take up

damages.

After

Sequoia's first

Because we conclude that no fiduciary relationship

existed between

these parties,

we

do not

reach the

other

claims of error raised by Sequoia.

A. Standard of Review
______________________

-77

On review, questions of law are determined de novo.

__ ____
See, e.g., American Title Ins. v. East W. Fin. Corp., 16 F.3d
___ ____ ___________________
__________________
449, 453-54 (1st Cir. 1994).
set

Findings of fact "shall not be

aside unless clearly erroneous."

Fed. R. Civ. P. 52(a).

A finding of fact is "`clearly erroneous' when although there

is

evidence to support it, the reviewing court on the entire

evidence is left with the definite and firm conviction that a

mistake

has been committed."

City, 470 U.S. 564,

____

Anderson v.
________

573 (1985) (citation omitted); see

___

Tresca Bros. Sand & Gravel, Inc.

___________________________________
Local 170,
__________

City of Bessemer
________________

19 F.3d

63, 65

(1st

also
____

v. Truck Drivers Union,

_____________________
Cir. 1994)

("the central

finding . . . `will be given effect unless, after reading the

record

with care

and making due

superior ability

to gauge

unyielding belief

that a

Dedham Water Co.

________________

allowance for

the trier's

credibility, [we form]

mistake has been

a strong,

made'") (quoting

v. Cumberland Farms Dairy, Inc., 972

_____________________________

F.2d

453, 457 (1st Cir. 1992) (other citation omitted)).

B.
Chapter 93A and Massachusetts Common Law Governing
_____________________________________________________________
Fiduciary Relationships
_______________________
Section

11

of

the

practices statute, Mass. Gen.

action to

persons
of the

unfair acts

engaged

in commerce.

unfair

L. ch. 93A, grants a

engaged in

because

term "unfair,"

Massachusetts

commerce

who suffer

or practices of

trade

cause of
a

loss

another person

Though the statute does not define the

courts applying

section 11 have

standard under which the "`objectionable

-88

developed a

conduct must attain

a level of rascality
inured

that would raise an eyebrow

to the rough and

tumble of the

of someone

world of commerce.'"

Quaker State Oil Ref. Corp.

_____________________________

v. Garrity Oil Co.,

________________

884 F.2d

1510,

(quoting Levings
_______

Forbes &
________

1513

(1st Cir.

Wallace, Inc.,
_____________
Further,

396 N.E.2d 149,

a chapter

defendant's

1989)

93A

some common-law, statutory,

unfairness,'

or

were

`within at

at 1513

Ct. 1979)).

establish that
least the

`immoral,

unethical,

oppressive

`substantial injury . .

other businessmen.'"

"the

penumbra of

or other established concept

unscrupulous,' and resulted in

competitors or

153 (Mass. App.

claimant must

actions fell

v.

of
or
. to

Quaker State, 884 F.2d

_____________

(quoting PMP Assocs., Inc. v. Globe Newspaper Co.,

__________________
____________________

321 N.E.2d 915, 917 (Mass. 1975)).

"`Although
their

whether a

particular set

factual setting, is unfair or

of acts,

in

deceptive is a question

of fact, the boundaries of what may qualify for consideration

as a chapter 93A violation is a question of law.'"

Pharmacy, Inc. v.
______________

Stop & Shop Cos., 640

_________________

(Mass. App. Ct. 1994)

Shepard's
_________

N.E.2d 1112,

(citation omitted).

Here,

1115

the unfair

conduct complained of is Sequoia's failure to disclose Moog's

precarious financial condition.
section

11

disclosure"
duty,

"probably does

not

contain a

and where the statute

it "should

common

A commentator has noted that

law

be

limited to

sometimes

general

does give rise

situations

required

duty of
to such a

which even

disclosure,"

at

including

-99

instances where the

defendant is

Gilleran, The Law of Chapter 93A

_______________________
The theory presented
district

court

was

to the
that

a fiduciary.

Michael

C.

4:10 (1989 & Supp. 1994).

jury and later

Sequoia

stood

adopted by
in

the

fiduciary

relationship to Plastek and, consequently, a duty to disclose

arose.

We agree with the district

court that if a fiduciary

relationship

existed, its

breach would

have constituted

chapter 93A violation.

Plastek

was

respect

to

As noted

above,

in a

position of

Sequoia and

relationship
Moog's

when it

financial

dispute,

the district
"trust and

that

it

failed

is

subsequently abused

The

whether

that

dependence" with

to disclose

difficulties.

therefore,

court found

what

it knew

this
of

crux

of the

present

the

Sequoia-Plastek

relationship was fiduciary in nature.

The
setting,

question of whether,

a fiduciary

See, e.g., Broomfield

___ ____ __________

(Mass.

1965).

Massachusetts

First, a party

is a

v. Kosow, 212
_____

review of

question of

N.E.2d 556, 560

factual assessments

courts suggests that

will frequently

particular factual

relationship exists

fact.

Our

in a

made by

a fiduciary relationship

be found where certain

indicia are present.

owed a fiduciary duty is often

in a position

of great disparity or inequality relative to the other party.

See,
___

e.g.,
____

Kosow at
_____

560.

Second,

a fiduciary

duty (and

breach thereof) will be found to exist where the disparity in

-1010

relationship
powerful

has

been abused

to

party, particularly

result.

the benefit

where unjust

of

the more

enrichment would

See, e.g., id.; Warsofsky v. Sherman, 93 N.E.2d 612,

___ ____ ___ _________
_______

615 (Mass. 1950).

Further,
of

fiduciary

Massachusetts

in the commercial

relationships
courts

have

are
stated

transactions conducted at arm's

rise to

fiduciary

develop where
See,
___

e.g.,
____

one party
Warsofsky,
_________

courts

plaintiff

alone, by

into
v.

generally
that,

have

though

N.E.2d

repeatedly

reposing

at

615.

trust and

cannot thereby transform

(quoting

Kosow,
_____

212

courts look

to the defendant's knowledge

plaintiff's

consider

N.E.2d
at

a transformation has

the

business capacity

"`the
the

Superior Glass Co.

__________________

N.E.2d

whether such

and

that

a business relationship

determining

reliance

in another.

confidence in

First Bristol County Nat'l Bank, 406

__________________________________
1980)

can

Importantly,

cautioned

one which is fiduciary in nature.'"

(Mass.

business

relationship

reposes its confidence

93

present.

length generally do not give

relationships, such

however,

defendant,

context, other indicia

relation of

672, 674

560).

In

taken place,

of the plaintiff's
the

contrasted with

parties,

the

that of

the

defendant, and the "readiness of the plaintiff to follow

defendant's guidance in complicated transactions
defendant has

specialized knowledge."

Kosow,
_____

the

wherein the
212 N.E.2d at

560.

-1111

C. The Relationship Between Sequoia and Plastek

________________________________________________
After

a careful review of the whole record, and in

light of the foregoing

cannot

agree

that the

discussion of Massachusetts cases, we

facts

in this

case

establish that

Sequoia occupied a fiduciary position with regard to Plastek.

We think that the district court's conclusion to the contrary
rises to the level of clear error.
In

finding that a

fiduciary relationship existed,

the district

court placed

that Sequoia

"managed" the entire

based
Moog as

heavy reliance on

upon the following facts:

its conclusion

transaction, a conclusion
(1) that Sequoia designated

the general contractor; (2)

that Sequoia "generated

the purchasing

orders and effectively authored

the contract

between Plastek and Moog"; and (3) that Sequoia continued its
relationship
extricate

with

Moog

"for

itself from a legal

no

purpose

other

than

to

imbroglio of its own making."

Industrial Gen. Corp., 849 F.Supp. at 825.

_____________________

mistaken
subsidiary

We

think

for

two

the

district

court's

basic reasons.

factual finding

that

error.

Upon careful

review of

court's

assertion that

"Sequoia

First,
we believe
the

be sure, Sequoia officials

it

generated

rests on

is clearly

record, we

orders and effectively authored the contract

and Moog," id., substantially
___

conclusion

the

is
a
in

think the
purchasing

between Plastek

misstates what transpired.

To

directed Plastek to deal directly

-1212

with Moog.

However, as both

testified, Moog

issued

Sequoia and Plastek

purchase orders

for the

officials
production

parts

and

Plastek

there

is no

other way

acknowledged

evidence that

involved with

or was

a net 30 day basis.

in any
to ship
Second,

we do not think that Sequoia's overall

role

is sufficient

relationship

into

fiduciary

transaction involved

to

Notably,

Plastek's fateful decision

"management"

world.

orders.4

Sequoia directed

the production parts to Moog on

and more importantly,

those

to transform
one.

We

here is not uncommon

Under a turn-key arrangement,

the parties'

note

that

the

in the commercial

a manufacturer agrees

deliver to a buyer a completely assembled product that is

ready to

function.

It is

to acquire needed parts,

the manufacturer's responsibility

even if acting at the

the

turn-key buyer.

two

voting machine manufacturers,

purchase

orders

acknowledgments.

direction of

Accordingly, as we have just noted, the

to

Plastek.

Plastek,

in

turn,

sent

shipped those orders,

pursuant to

its own credit policies,

on a net 30 day basis.

Critically,

Plastek

a credit check

parts

Plastek

Moog and Momentum, issued

did not conduct

to Moog

nor did

it take any

before shipping the

other steps

to protect

itself against nonpayment.

____________________
4.

Sequoia

did issue

purchase orders

for prototype parts

_________
(for which it subsequently paid) but, as noted above, these
orders are not at issue here.
-1313

While
extricate

the Sequoia-Moog

Sequoia

agreement could

an

untimely

not and did not

at the expense of
for

from

settlement

Plastek.

did

legal

serve

battle,

to
that

advance Sequoia's interests

Sequoia remained liable

to Moog

the costs of the production parts and, when the work-in-

progress was transferred from

Moog in full

Moog to Momentum, Sequoia paid

for the parts Moog had

Our conclusion that

an insufficient
fiduciary

one

acquired from Plastek.

Sequoia's "management" role is

basis to transform this

is reinforced

outlined above.

First, we

by

relationship into a

reference

find no great

Sequoia-Plastek relationship.

to the

indicia

disparity in

the

The record indicates that both

Sequoia and Plastek were experienced in the commercial world.

Further,

the

operating

facts

under

suggest
tight

that,

because

deadline

and

Sequoia

had

encountered

difficulties in locating an adequate plastic parts

Plastek

was

relationship.
Sequoia's

not

altogether

Second, to

favor, we again

without

leverage

the extent a disparity

fail to see

was

supplier,
in

the

existed in

how the relationship

was

abused to

the benefit

judgment below will

for

that

Sequoia
had

of Sequoia.

not be to

matter, any

The effect

of the

remedy unjust enrichment

other

benefit

would simply be paying

accruing to

again for the

already purchased from Moog.

or,

Sequoia.

same parts it

Third, the district court

-1414

did not find that Sequoia had

reliance

on

Sequoia.

Our own

would have

the trust

and

alerted Sequoia to a

specific

regard to

Plastek officials
finances

dependence

or

it

had reposed

review of the record reveals

or that Plastek was relying

With

knowledge of Plastek's alleged

nothing that

heightened fiduciary status

on Sequoia to guarantee payment.

the Moog

make inquiry

creditworthiness,

before alerting Sequoia of

in

sales,

of Sequoia
and

Plastek

at no

point did

regarding Moog's
waited

its problems with Moog.

months
Even if

we were to agree with the district court that Plastek, having

been "lulled by Sequoia's blandishments and visions of lucre,

looked to Sequoia to watch out for its interests," Industrial

__________
Gen. Corp., 849 F. Supp. at 823, the record is
__________
evidence that Sequoia knew
facts

overwhelmingly

reposed

"trust

and

of this reliance.

suggest

that

dependence"

to the
in

devoid of any
In

short, the

extent

Sequoia,

it

Plastek
did

so

unilaterally.
Finally,

we observe

that our

conclusion comports

with the so-called "rascality" standard underlying section 11

unfairness

claims.

conclusion

that

We

agree with

Plastek

altogether too trusting

was

the

"naive,

district

court's

inattentive

and

of Sequoia," Industrial Gen. Corp.,

______________________

849 F.Supp. at 825-26, and that its complacency may have been
due, in

part, to the fact that Plastek and Sequoia "were not

strangers to

one another"

given the initial

exploration by

-1515

one

of

Sequoia's

principals

into

acquiring

Walco

(the

predecessor-in-interest of

Plastek's

extending

and assuming

credit to

Moog

parent company).
-- perhaps

By

through

naivete, inattention and trust -- that Sequoia would pick

the

tab, Plastek

clearly

made a

costly

mistake.

Sequoia might have chosen to share with Plastek

up

Though

its concerns

about Moog's finances as they developed, we do not think that

its failure to do so would make Sequoia a commercial rascal.
Under

the clearly erroneous

free to reverse merely because we

court's

conclusions.

Rather,

unyielding conviction that the

This

standard is

where the

have

the

district court was

especially important in

adduced during

are not

disagree with the district

we must

district court made a

on evidence

standard, we

a case

strong,
mistaken.
like this

factual determination based

a lengthy and

exhaustive trial.

We emphasize

that we have thoroughly

the

Based on the record as a whole, and in light of

record.

and carefully examined

similar

factual evaluations made by Massachusetts courts, we

are

the

of

conclusion
Sequoia

unyielding
that

and Plastek

belief that

fiduciary
was

the

district

relationship

mistaken.

fiduciary relationship, no duty

Because

court's

existed between
there was

no

to disclose existed and thus

no cause of action lies under section 11, chapter 93A.

III.
III.
____
CONCLUSION
CONCLUSION
__________

-1616

For
district court

the
is

foregoing reasons,
reversed and

the

the

decision

case is

proceedings consistent with this opinion.

Each party shall bear its own costs.
Each party shall bear its own costs
___________________________________

of the

remanded

for

-1717