USCA1 Opinion

United States Court of Appeals

For the First Circuit
____________________

No. 94-2161

LEVI C. ADAMS, ET AL.,

Plaintiffs, Appellees,

v.

ZIMMERMAN, ET AL.,

Defendants, Appellees.

____________________

FEDERAL DEPOSIT INSURANCE CORPORATION,

Defendant, Appellant.

____________________

No. 94-2162

LEVI C. ADAMS, ET AL.,

Plaintiffs, Appellants,

v.

ZIMMERMAN, ET AL.,

Defendants, Appellees.

____________________

FEDERAL DEPOSIT INSURANCE CORPORATION,

Defendant, Appellee.

____________________

No. 94-2246

LEVI C. ADAMS, ET AL.,

Plaintiffs, Appellees,

v.

ZIMMERMAN, ET AL.,

Defendants, Appellees.

____________________

FEDERAL DEPOSIT INSURANCE CORPORATION,

Defendant, Appellant.

____________________

No. 94-2247

LEVI C. ADAMS, ET AL.,

Plaintiffs, Appellants,

v.

ZIMMERMAN, ET AL.,

Defendants, Appellees.

____________________

APPEALS FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Nathaniel M. Gorton, U.S. District Judge]

___________________

____________________

Before

Torruella, Chief Judge,

___________
Lynch, Circuit Judge,
_____________
and Stearns,* District Judge.
______________

____________________

Vincent M. Amoroso,
__________________

with whom Harry A. Pierce and

________________

Parker,
_______

____________________

*Of the District of Massachusetts, sitting by designation.

Coulter, Daley & White were on brief, for plaintiffs.

______________________

J. Scott Watson, Federal Deposit Insurance Corporation, with

_______________

whom David S. Mortensen, Glenn D. Woods, and Tedeschi, Grasso and

__________________ ______________
____________________
Mortensen were on brief,
_________

for defendant Federal Deposit Insurance

Corporation.

____________________

January 19, 1996

____________________

LYNCH,
LYNCH,

Circuit
Circuit

Judge.
Judge.

troubled

condominium

______________

development

federal

led

to these

banking

law:

appeals,

whether 12

which

raise issues

U.S.C.

1823(e)

of

and

D'Oench, Duhme & Co. v. FDIC, 315 U.S. 447 (1942), shield the
____________________
____

FDIC, as receiver for

bank's sale

FDIC

has

a failed bank, from liability

of unregistered securities.

no

such shield

and

is

We

liable,

for the

hold that

the

but remand

for

adjustment of the remedies fashioned by the district court.

These

consolidated cross appeals

development of the

Hyannis Harborview Hotel.

the Hotel were marketed

Trust

Company and

condominium

units.

arise out of the

The units

and sold by the University

the other

defendants as

Although these

they were never registered, and,

in

Bank and

"pooled income"

units were

securities,

when the development of the

Hotel

faltered,

the

plaintiffs, purchasers

units in the Hotel, sued the

of

Bank for, inter alia, the

_____ ____

of unregistered securities in violation of the

Uniform Securities Act, Mass.

The

Bank

was

individual

Massachusetts

Gen. L. ch. 110A,

later declared

insolvent

and

410(a)(1).

the FDIC,

receiver, was substituted for the Bank as a defendant.

rejecting

barred

court

the FDIC's

the plaintiffs'

held

the

FDIC

argument

that

registration

liable under

1823(e) and

claims,

section

sale

the

as

After

D'Oench
_______

district

410(a)(1)

and

awarded the plaintiffs rescissionary damages, attorneys' fees

and interest.

-4-

I.

In

Background And Procedural History

1985,

Gary

Harborview

Hotel, Inc.

financial

and marketing

into condominiums.

Zimmerman,

president

of

(HHI), approached Robert

advice about

Keezer, who

converting

was then the

Hyannis

Keezer for

the Hotel

Bank's second

largest stockholder, Vice Chairman of its Board of Directors,

and a member of

for

an

the Bank's Loan Committee,

interest

in the

Chaban, an expert in

to manage

Keezer

so

brought Norman

condominium marketing, into the project

the marketing

arranged to

project.

agreed to do

and sales of

have a $6.8 million

the condominiums

and

condominium conversion loan

placed through the Bank.

To make

the Hotel

units more

attractive, Keezer,

Chaban and Zimmerman marketed and sold the units on a "pooled

income"

basis.

receive income

entire

That is, the purchasers were told they would

based

condominium

upon their

project

pro rata

rather

generated by their individual units.

of Trust and By-Laws

than

interest in

on

the

the

income

The Hotel's Declaration

(these and the Master

Deed constitute

the "Master Documents") provided that each unit owner:

[1]

shall

be

liable

attributable
Condominium

to
in

for
the

the

Common

Expenses

operation

same

of

proportion

the
as his

Beneficial Interest in this Trust bears to the

aggregate

Beneficial

Owners . . . ;[and]

-55

Interest

of

all

Unit

[2]

shall be entitled
attributable to

to common profits, if
the operations of

of

proportion

as his Beneficial Interest in this

bears

to

the

in

the motel-

type Units

Trust

the Condominium

any,

aggregate

the

same

Beneficial

Interest of all [unit] owners.

When several

of the plaintiffs were

financing to purchase their

voted

After

units, the Bank's Loan Committee

to approve $3,000,000 in "end loan" financing to them.

the

plaintiffs

agreements,

which

executed

incorporated

their

by

purchase

reference

Documents, the

Loan Committee (with Keezer

end

several

loans

purchases.

arm,

unable to get

to

This was

University

of

the

plaintiffs

considered and approved such

Services

the

sale

Master

voting) approved

the first time that the

Financial

and

to finance

the

Bank's lending

Corporation,

end loans, a type of

had

financing

arrangement

business

units.

not considered standard procedure in the banking

at the

time.

The

plaintiffs then

purchased the

Three of the plaintiffs, Marietta Lopes ("Lopes") and

Michael and Barbara Riley (the "Rileys"), were able to secure

financing from other lending institutions.

The

About six

longer

unhappy

complaint

were

months after

they were told

no

units

never registered

as

the plaintiffs purchased

securities.

the units,

by HHI that, upon advice of counsel, it would

pay unit

income

plaintiffs in

against HHI,

1989

based on

filed

Zimmerman,

-6-

a rental

pool.

their six-count

Chaban,

The

amended

Keezer and

the

Bank,

inter alia.1
_____ ____

Currency declared

as receiver.

On May

31, 1991, the Comptroller of the

the Bank insolvent and

The

FDIC was

appointed the FDIC

substituted for

the Bank

as a

defendant.

The district court granted summary judgment for the

FDIC

based

on

its

special

defenses

under

D'Oench
_______

and

1823(e), except on the

state securities registration count

(Count V).

After

Memorandum

of Decision, Adams
_____

838

F.

Supp.

a bench trial, the district court issued a

676 (D.

v. Hyannis Harborview, Inc.,

_________________________

Mass.

1993),

holding, among

other

things, that the plaintiffs were entitled to judgment against

the FDIC on Count V.

The court

Documents

made the

thus securities

Id. at 686.
___

held that

Hotel units

within the

It also

arrangements made

the provisions in

"investment contracts"

meaning of the

held that, in

for the

the Bank's agent in the sale

the Master

and

securities laws.

light of the

financing

purchasers, Keezer was

acting as

of the units and so his actions

____________________

1.

In addition to their claims under Mass. Gen. L. ch. 110A,

410(a)(1), the
12(2)

complaint

also alleged

of the Securities Act

U.S.C.

77l(2)

provisions of
15 U.S.C.

of 1933 (the

(Count I), (2) violations

of

"1933 Act"), 15
of the anti-fraud

10(b) of the Securities Exchange Act of 1934,

78j(b), and

Rule

10b-5 of

Exchange Commission, 17

C.F.R.

common

deceit (Count

law

(1) violations

fraud

and

the Securities

240.10b-5
III),

and

(Count II),
(4)

(3)

negligent

misrepresentation (Count IV), and (5) violations of the antifraud

(Count

provisions
VI).

of Mass.

Zimmerman

Gen.
was

defendant.

-77

L.

ch. 110A,

eventually

410(a)(2)

dismissed

as

would be imputed to the Bank.

rulings

that D'Oench and

_______

special

defenses to Count V,

the

Id. at 692.
___

It reaffirmed its

1823(e) provided the FIDC with no

id. at 691
___

n.14, and rejected

FDIC's argument that the loans to the plaintiffs made by

the Bank were "bona fide"

loan transactions under Mass. Gen.

L. ch.

and thus exempt

110A,

requirements.

401(i)(6)

Id. at 694 n.16.

___

The court

award

from registration

later

pursuant to Mass.

ordered a

Gen. L. ch.

statute provides for recovery

rescissionary

110A,

damages

410(a).

That

of "the consideration paid for

the security, together with interest at six per cent per year

from the

date of

payment, costs, and

reasonable attorneys'

fees, less the amount of any income received on the security,

upon

tender

of

the

security,

or

for

plaintiff] no longer owns the security."

Specifically, the court

damages

if

[the

Id.
___

awarded to all

plaintiffs

except Lopes and the Rileys $855,434, plus interest of 6% per

annum

order.

from

The

February 11,

court

plaintiffs owed on

by the FDIC and HHI

cancelled the

denied

under

said

1994 to

it

the

date of

"novated"

the damages

the

amounts

the first and second mortgage

respectively.

the Rileys

a rescissionary

section 410(a)(1) because

notes held

The "novation" apparently

plaintiffs' debt on the mortgages.

Lopes and

the

it

The court

damages award

believed it

could

not

novate the loans

that Lopes

and the Rileys

owed to

third-

-88

party

banks.

It did,

however, give

Lopes and

the Rileys

damages of $256,564 (the principal and interest payments they

had made on their

mortgage loans plus the amount

they still

owed on those loans) from Keezer, Chaban and HHI on the other

securities law claims successfully asserted.

The court gave each

plaintiff the option of either

accepting the rescission award (and the novation) in exchange

for title to the

retaining

unit or, in lieu

the unit

fees of $351,213

Finally, it

free and

of the rescission

clear.

It

against Keezer, Chaban,

ordered that

award,

awarded attorneys'

HHI and the

the plaintiffs' recovery

FDIC.

would be

subject to the FDIC's "obligation to distribute the assets of

[the Bank] on a pro rata basis."

The

D'Oench
_______

FDIC

appeals

the rulings

with respect to Count

loans were not

attorneys' fees

"bona fide" loan

on

V, the finding

1823(e)

that the bank

transactions, the award

and post-insolvency interest,

and

of

and the order

that any reconveyance be

just to the

district

securities

imputable

FDIC.

court's

or

to

challenge the

its

the

made to all defendants rather

The FDIC does

conclusion

not challenge either

that

the

conclusion that

Bank.

district

The

Keezer's

plaintiffs'

court's method

rescissionary damages award, its

-99

Hotel

of

than

the

units

were

actions

were

cross-appeals

calculating

the

decision to limit the award

in accordance with the rule of

ratable distribution, and its

failure to grant fee enhancements.

II.

Section 1823(e) And D'Oench

_______

The FDIC argues that

claims

cannot

under state

point

to

securities

written

"registrability of securities."

from asserting against the

1823(e) and D'Oench bar the

_______

law

because the

agreement

Section

plaintiffs

regarding

the

1823(e) bars anyone

FDIC any "agreement" that is

not

in writing and is not properly recorded in the records of the

bank.

12 U.S.C.

plaintiffs

against

from

the

1823(e).

asserting

FDIC

oral

either

as

either a

agreements

Timberland Design, Inc. v.

________________________

932 F.2d 46,

D'Oench generally
_______

claim

or

or

prevents

defense

"arrangements."

First Service Bank for Savings,

_______________________________

48-50 (1st Cir. 1991).

We

do not believe that

1823(e) or D'Oench shields the FDIC here.2

_______

____________________

2.

As

modified

by

the

Financial

Institutions

Recovery, and Enforcement Act (FIRREA),

No agreement which tends

interest

of the

such

agreement

[is

1823(e) provides:

to diminish or defeat the

[FDIC] in

it . . . shall be valid

Reform,

any asset

acquired by

against the [FDIC]

in

writing

unless

and satisfies

number of other requirements].

12

U.S.C.

1823(e).

circuit

split

appears to

have

developed

over

the

preempted D'Oench.
_______

question

of

39

has

is no reason to suppose that

Congress intended [by the passage of

receiver

1823(e)

Compare FDIC v. McClanahan, 795 F.2d 512,

_______ ____
__________

514 n.1 (5th Cir. 1986) ("there

rule of estoppel

whether

from being

1823(e)] to forbid the

applied when the

FDIC sues

as

of a failed bank") with Murphy v. FDIC, 61 F.3d 34,

____ ______
____

(D.C. Cir. 1995) (relying

on O'Melveny & Myers v. FDIC,

__________________
____

-1010

While expansive in

scope,

1823 and D'Oench

_______

only

protect

the

FDIC from

claims

"agreement" or "arrangement."

or

defenses

See 12 U.S.C.
___

NBW Commercial Paper Litigation, 826

_________________________________

1466 (D.D.C. 1992).

Although

based upon

an

1823(e); In re
_____

F. Supp.

1448, 1461,

the concept of "agreement" has

been broadly defined to include not only promises to perform,

but

also

Langley
_______

claims

misrepresentations

v.

FDIC, 484
____

U.S.

against the FDIC are

or

86,

material

omissions,

92-93 (1987),

not based upon

see
___

plaintiffs'

an agreement or

arrangement.3

Liability

for failure to register a security under

Mass. Gen. L. ch. 110A,

a remedy

that

was

410(a)(1) is strict.

under section 410(a)(1) is

said

or

agreed

to

The right to

independent of anything

between

the

Bank

and

the

plaintiffs.

created

Bank,

The

act

of

selling the

the liability and, as

through

securities.

Keezer,

See
___

is

what

the district court found, the

sold

the

826

F.

NBW,
___

securities

plaintiffs

Supp.

at

unregistered

1468

(sale

of

____________________

114

S. Ct. 2048 (1994)

preempts D'Oench);
_______
Partnership
___________
F.3d

for the proposition

that the FIRREA

see also DiVall Insured Income Fund Ltd.

___ ____ ________________________________

v. Boatmen's First Nat'l Bank of Kansas City, 69

_________________________________________

1398, 1402 (8th Cir.

1995) (D'Oench and

_______

holder in due

course doctrines preempted by FIRREA); Timberland Design, 932

_________________
F.2d at 51 (not reaching

the preemption question because

had been raised for the first time on appeal).

and

do not, reach the

preempted by

3.

Indeed,

"arrangement"

question of whether

it

We need not,

D'Oench has been

_______

1823(e).

after

Langley,
_______

appear to

the

terms

be virtually

"agreement"

synonymous.

and

See id.

___ ___
("agreement" is "scheme or arrangement").

-1111

unregistered securities in violation

of

12(1) of

the 1933

Act does not rest on an agreement or arrangement).4

The FDIC's

attempt to shoehorn this

case into the

Supreme Court's Langley decision is unfitting.

_______

Starting with

the observation in Langley that the term "agreement" includes

_______

an

implicit

condition

such

as

the

"truthfulness

of

warranted fact," see Langley, 484 U.S. at 93, the FDIC argues
___ _______

that

the plaintiffs'

claims depend

on the

Bank's "implied

warranty" that the securities it was selling were legal.

to

But

the extent that such a warranty can even be characterized

as an agreement or arrangement, the plaintiffs' claims do not

depend

upon it.

obligation

The

arising

claims come from

from

the

act

an independent legal

itself

--

the

sale of

unregistered securities -- and not from any warranty that the

action was legal.

The

FDIC

See NBW, 826 F. Supp. at 1468.

___ ___

says

that

D'Oench
_______

designed to shield the FDIC from hidden

and

1823(e)

are

liabilities and that

the

FDIC could not have

the Bank had

does

known from the

sold securities

not appear

to

be

the

Bank's records that

to the plaintiffs.

case.

Although

But

the

that

Bank's

____________________

4.

This case is not like

which plaintiffs
security

based

omission.

claim that they were induced

upon

some

In such cases,

something the bank

See,
___

typical securities fraud cases

said or

material

to purchase a

misrepresentation

a plaintiff's claim
did that

misled the

e.g., Dendinger v. First Nat'l Corp., 16

____ _________
__________________

Cir. 1994);

Kilpatrick v.
__________

Riddle, 907 F.2d

______

1990), cert. denied, 498 U.S. 1083 (1991).

_____ ______

-1212

in

or

depends upon
plaintiff.
F.3d 99 (5th

1523 (5th

Cir.

documents did

not specifically use the

term "security," the

pooled income arrangement is disclosed in the documents.

HHI

that

Declaration of

Trust

the Hotel would be

and By-Laws

specifically provide

operated on a

pooled income basis.

The mortgages were reflected in the Bank's records.

Proposal for the conversion

would

and

Declaration

sale agreements

of Trust

and

The Loan

loan states that the condominium

be operated on a pooled income basis.

purchase

The

incorporate by

By-laws; and

The plaintiffs'

reference the

the Loan

Extension

documents for the plaintiffs referenced the condominium units

as

collateral.

A review

plaintiffs' promissory

of the documents

notes would

pertinent to the

have revealed the

facts

showing that the Hotel units were pooled income units.

Perhaps

recognizing this problem

with its general

policy argument, the FDIC presses a slightly refined variant.

It

argues

that

1823(e)

and

D'Oench
_______

apply

because

no

specific writing appears on the Bank's records signed by both

a plaintiff and the Bank that "memorializes any obligation of

the Bank with

respect to

a securities

transaction."

This

argument,

which is premised on the notion that there must be

a written

agreement that

the condominium units are

specifically states in

terms that

securities, rests on the incorrect

assumption that the bank examiners

must be able to determine

the

reflected

legal

records.

import

This

of

the

assumption

facts

ignores that

in the

bank's

"[t]he real

issue

-1313

. . . is not

the

bank's

whether the

actions

were

bank examiners could

illegal (or

indeed

tell whether

whether

the

examiners knew

factual

what the

predicate

for

established on the

n.28.5

That

law was),

the

application

bank's books."

the

but rather,

in

the

of

the

law

is

NBW, 825 F. Supp. at 1469

___

plaintiffs' claims

documents referenced

whether the

books of

rest

on

the

Bank

collateral

does

not

transform their section 410(a)(1) claims into ones based upon

an agreement or arrangement. Id.6

___

____________________

5.
held

This case is
that the

quite similar
FDIC could

unregistered securities.
NBW
___

on its facts are

here was

both a
____

The

liable for

which the
a bank's

court
sale of

FDIC's attempts to distinguish

unpersuasive.

that the bank in NBW was

___
Bank

be

to NBW, in
___

First,

the FDIC argues

only a seller of securities and the

____
seller and

a lender.

But

all that

really means is that the NBW plaintiffs paid for the security
___

with

cash while

the plaintiffs

here paid for

with a promissory note and mortgage.

that

in NBW
___

provided

there was

for

necessary, and

a written

securities
the Bank's

pooled income units.

the security

Second, the FDIC argues

agreement which

purchase.

But

in terms

that

records reflect the

is

not

sale of

the

Third, the FDIC claims that

unlike in

NBW where the bank was self-dealing, the Bank here was simply
___
acting as a

third party

lender in this

transaction.

claim is just not supported by the record.

these distinctions bears on
the

plaintiffs'

unregistered

claims

Moreover, none of

the central insight of NBW

___

against

securities do

That

a bank

not arise

for

the

from an

that

sale

of

agreement or

arrangement.

6.

It is fair

for the FDIC to

that the plaintiffs' claims

make the very general

point

depend upon an agreement because

they depend

upon a "sale"

agreement.

However, it is undisputed that the sale of these

units to
records
The

FDIC

writing,

the plaintiffs is
sufficient to

security and a

to

sale is

clearly reflected in

satisfy both

suggests however
sufficient

of a

1823(e)

that there
satisfy

an

the Bank's
and D'Oench.
_______

is

an absence

1823(e)

and

of a

D'Oench,
_______

specifically mentioning in terms that the Bank was a "seller"

of the units.

As with the FDIC's argument that the documents

-1414

The

only

policy consideration

underlying D'Oench
_______

that the FDIC argues is relevant here is the concern that the

FDIC be

able to value

bank's

records either

purposes

of

a purchase

the assets of

for

and

a bank by

purposes of

assumption

reviewing a

liquidation or

for

transaction.

See
___

Langley, 484 U.S.

_______

"'with great

the

going

at 91-92.

a valuation must be

speed, usually overnight, in

concern value

interruption in

of the

failed

banking services.'"

(quoting Gunter v. Hutcheson,

______
_________

cert.
_____

Such

adequately the

order to preserve

bank and

674 F.2d 862, 865

sale of

avoid an

Langley, 484 U.S. at 91

_______

denied, 459 U.S. 1059 (1982)).

______

reflect

done

(6th Cir.),

Where the Bank records

the Hotel

units as

pooled

income units, these concerns appear to be satisfied.7

____________________

must have
this

stated in

argument assumes

documents
overcome

terms that
that

the units

the legal

were securities,

significance of

the

must be apparent to the bank examiners in order to

1823(e) and D'Oench.
_______

Just as

the pooled income

language in the Master Documents made the units securities by

operation of securities law,

the loan documents reflected in

the record,

as

the district

concedes, made Keezer's

Bank by

court concluded

sale of the

operation of principles of

securities law.

That the

7.

Plaintiffs

their

See
___

these loan

does not bar the

NBW, 826 F. Supp. at 1469 n.29.

___

have also argued that notwithstanding whether

claim depends

where

the

agency incorporated into

legal significance of

upon

an agreement,

affect no "asset" for purposes of

that

FDIC

units imputable to

transactions was not explicitly spelled out

plaintiffs' claims.

and the

notes

are

invalidated

their claims

1823(e).
by

acts

They point
or

will
out

omissions

independent of an alleged secret agreement, the notes are not

an

asset

protected by

1823(e).

See
___

FDIC v.
____

Bracero &
_________

1990).

They argue

the condominium units

were void,

Rivera, Inc., 895 F.2d 824, 830 (1st Cir.

____________
that because

the sales of

see Kneeland
___ ________

v.

Emerton, 183
_______

(under predecessor to

N.E.

155, 159

(Mass.

Massachusetts Uniform Securities

-1515

1932)
Act,

III.

Sales Of Securities Or Bona Fide Loans?

The

FDIC also

securities,

arguing

transactions

instead.

says that

that

We

these

provides that

"offer," or "offer

to sell"

The

conclusion

were

disagree.

securities statute

pledge or loan."

there

that the

amply

loans

bona

sales of

fide

The pertinent

the terms "sale,"

do not include

Mass. Gen. L. ch. 110A,

record

were no

supports

were not

the

made

loan

state

"sell,"

any "bona

fide

401(i)(6).

district court's

in the

ordinary

course

of business

Keezer operated

not bona fide.

together in

these condominium

apparent that

and were

The

the marketing and

units to the

plaintiffs.

the project might fail

Bank and

financing of

When

it became

because the purchasers

were having trouble getting financing, the Bank departed from

standard

plaintiffs

banking

practice

and

offered end

(except Lopes and the

granting the end loans to

Rileys).

loans

When

to

the

it came to

the plaintiffs, the Bank's

agent,

____________________

sale

of

intention

stock
to

was
sell

void

shares

transaction
had

not

Department of Public Utilities),

upon

the units

asset passed to

were also

filed

notice

of

with

the

the promissory notes

void,

the FDIC when

been

where

and that,

it took over

based

accordingly, no
the Bank.

The

FDIC counters that notwithstanding Kneeland's use of the term

________
"void,"

the

case

actually

employed

the

concept

of

"voidability," see id. (stating that the transaction was void

___ ___
at the buyer's instance),

and that an asset does pass to the

FDIC

is voidable.

if the

transaction

See Kilpatrick
___ __________

Riddle, 907 F.2d 1523, 1528 (5th Cir. 1990).

______
that the plaintiffs' claims
an

agreement

or

Because we hold

in this case do not

arrangement,

we

need

not

v.

depend upon
resolve

this

sales were

not

question.

-1616

Keezer, knew or

should have

known that the

registered and therefore could not be completed in compliance

with the

securities laws.

He nevertheless

the vote to approve the end loans.

That the

participated in

substitution of

the plaintiffs' good debt for HHI's bad debt may have been in

the interest

of

establish that

transactions.

an unregistered

were

entered

finance and

Bank

knew or

the

the

Bank

Bank

and its

shareholders

was involved

in

bona

does

fide

not

loan

The substitution was based on

the transfer of

security to the plaintiffs.

Where the loans

into in

the course

market, through

should have

of

the Bank's

its agent, securities

known could

not be

registration, the loans were not bona fide.

IV.

Remedy

effort to

that the

sold without

Each

remedial

order.

erroneously

side complains

about

Plaintiffs argue

ordered that

the

district

that the

any recovery

court's

district court

against the

FDIC be

subject to the FDIC's responsibility to distribute the assets

of the failed bank in a ratable manner.

the

district court's

method

damages was infirm, that

and the Rileys,

attorneys' fee

that the

and that

setting the

rescissionary

the award improperly excluded Lopes

the court should

enhancement.

district court

of

They also argue that

For

erred

-1717

have awarded

its part, the

in awarding

an

FDIC claims

post-insolvency

interest and attorneys' fees

and in requiring the plaintiffs

accepting

the rescissionary damages

to reconvey their units

to all of

the defendants rather than only to

the FDIC.

The

district court's award is reviewed for an abuse of discretion

unless it

rests on

an erroneous

legal determination.

See
___

Downriver Community Federal Credit Union v. Penn Square Bank

_________________________________________
________________

through FDIC,
_____________

879 F.2d

754,

758 (10th

Cir.

1989), cert.
_____

denied, 493 U.S. 1070 (1990).

______

A.

Ratable Distribution
____________________

The FDIC, as receiver, is authorized to

the assets

of a failed bank

basis pursuant

and 194,

to all creditors on

to the National

and the

FIRREA at

distribute

Bank Act at 12

12 U.S.C.

a pro rata

U.S.C.

91

1821(i)(2).8

See
___

also United States ex rel. White v. Knox, 111

____ ____________________________
____

U.S. 784, 786

____________________

8.

Section 91 prohibits a bank facing insolvency from making

payments that prefer

91.
among

Section
all

receivership

some creditors over others.

194 requires a ratable distribution of assets

general creditors
estate.

entitled

12 U.S.C.

to

a share

194 (providing

FDIC "shall make a ratable dividend . . . on

as may
in a
limits

12 U.S.C.

in

the

that the

all such claims

have been proved to [its] satisfaction or adjudicated

court of competent jurisdiction").
the

FDIC's liability

as

Section 1821(i)(2)

receiver to

the

amount a

claimant would have received in a straight liquidation of the

failed

bank. 12 U.S.C.

1821(i)(2) ("The maximum liability

of the [FDIC] . . . to any person having a

equal the
[FDIC]

amount such

had liquidated

institution . . . .").
itself, resolve
to

the

the

assets and

Section

have received

if the

liabilities of

1821(i)(2)

does

not,

such
by

the issue of whether a plaintiff is entitled

a preference

define[]

claimant would

claim . . . shall

because the

statute does

priorities [that]

Branch v. FDIC, 825 F. Supp.

______
____

define

not "alter[]

or

liquidation value."

384, 417 & n.35 (D. Mass. 1993)

(internal quotation omitted).

-1818

(1884) ("Dividends are to

that is

must

to say,

proportionally.

To

be made by some uniform rule.

to be treated alike.").

is

be paid to all

not absolute,

unfriendly

preferred

to

the

creditors ratably;

be proportionate

. . .

All creditors are

While the ratable distribution

statutory

the

recognition

claims."

Downriver,
_________

framework

of

is

special

879 F.2d

they

rule

"distinctly

interests

at 762

or

(internal

quotation omitted).

A plaintiff seeking an

rule

exception from the pro rata

bears a heavy burden of proof to show that a preference

is warranted.

Id.;
___

see also Branch 825 F. Supp.

___ ____ ______

preference might be warranted where

at 416.

a plaintiff is a secured

creditor

and

is

security, see
___

413

(1938),

seeking

to

enforce

Ticonic Nat'l Bank

__________________

or

where

lien

against the

v. Sprague, 303
_______

the plaintiff,

although

U.S. 406,

general

unsecured creditor, can show an entitlement to a constructive

trust.

See
___

Downriver,
_________

plaintiffs can

879

F.2d

at

762.

Because

the

show neither, their awards are subject to pro

rata distribution.

None

they argue to no

of the

plaintiffs has

avail that they have claims

to a constructive trust.

did

not,

that

a secured

the

claim, and

entitling them

The plaintiffs must have shown, and

Bank's

fraudulent

conduct

caused

particular harm that is not shared by substantially all other

creditors, and that granting the relief would not disrupt the

-1919

orderly

administration

of the

court found, however, that

estate.

Id.
___

The district

the defendants committed no fraud

in this case, and fraud (or violation of a fiduciary duty) is

generally a

trust.9

prerequisite to the formation

Moreover,

the

plaintiffs have

of a constructive

not

shown that

preference

would

administration of

not

interfere

the estate.

with

The district

the

orderly

court properly

held that the plaintiffs' awards were subject to the pro rata

distribution rule.

B.

Rescissionary Damages Award

___________________________

Rescissionary

damages

other defendants, jointly and

plaintiffs except

also "novated"

Lopes

the

FDIC

and the

severally, were awarded to all

Lopes and the Rileys.

the remaining debt of

The district court

all plaintiffs (except

and the Rileys) on the first and second mortgages held

by the FDIC and HHI.

of

against

the district

district

court

The plaintiffs quarrel with this aspect

court's award

used

an

in two

incorrect

respects:

method

of

that the

calculating

____________________

9.

The only fraudulent behavior the

plaintiffs attribute to

the Bank stems from the Bank's opposition to

Motion

for Order Segregating Assets filed a few weeks before

the Bank was

declared insolvent. In opposing the motion, the

Bank represented
feared

to the court

that any harm

the plaintiffs

from an FDIC takeover was mere speculation.

failed to inform the

court that it was in

the FDIC and a

takeover by the FDIC

condoning this

regrettable lapse

help the

the plaintiffs'

plaintiffs.

negotiations with

was imminent.

by the

The plaintiffs have

The Bank

Bank, it

Without
does not

not demonstrated

that they would have been entitled to a segregation of assets

had the

Bank properly

informed the court

condition as it should have.

-2020

of its

financial

damages,

Lopes

and

and the

that the

district

Rileys from

court

improperly excluded

the rescissionary

damages award

that ran against the FDIC.

1.

Method of calculation.
_____________________

The district

court ordered an award of rescission,

excluding interest, of $654,949.

with the total

interest

amount of

and other

mortgages held by the

court

money at issue

expenses

income received and the

The district court started

paid by

-- the

the plaintiffs

unpaid debt on the first

FDIC, for a total of

then subtracted the

principal,

and second

$2,072,205.

unpaid mortgage debt

minus

The

owed to the

FDIC

and HHI, a total

interest

of $1,271,100, and

payments made by Lopes

$146,156,

to

reach $654,949.

the principal and

and the Rileys,

a total of

The

ordered

court then

"novation of the notes owed by the plaintiffs

HHI and the

to defendants,

FDIC," although the court apparently intended an

outright cancellation of the notes.

Plaintiffs

argue that

the

district court

should

have awarded them the entire amount of consideration paid for

the

units,

subject

including

the

setoff

by the

to a

portions of the

court should

loans.

also have

unpaid portions

FDIC

and HHI

They also argue

allowed the

of

the

for

loans,

the unpaid

that the

district

plaintiffs to

keep the

units as a setoff for any damages owed to the plaintiffs from

-2121

the

FDIC that would be left unpaid because of the insolvency

of the Bank.

As a

practical matter, there

is little difference

between what the district court ordered (return of principal,

interest, fees

the

and expenses

loans) and

cost of loans

minus income and

what the

plaintiffs are

plus amount

paid on the

"novation" of

requesting (entire

units minus

income,

leaving plaintiffs' debt to the FDIC and HHI intact).

plaintiffs recognize,

the

district court's

solvent defendant, would fully

Plaintiffs

units."

award

As the

"with

fund rescission and return to

their full damages in exchange for title to their

The plaintiffs argue,

however, that their method of

calculation makes a difference

because the Bank is insolvent

and will

not be able

Plaintiffs

the damages judgment

in full.

say their method allows them to keep the units as

a setoff and thus

owed and the

to pay

make up any shortfall between

pro rata share of

the damages

the Bank's assets they

will

receive.

We disagree.

A setoff is often

a debt

that

justified where a plaintiff owes

to an insolvent party

debt

without

insolvent party may

being

and will be forced

allowed to

recover

owe to the plaintiff.

See
___

to pay off

debt

In re Saugus
____________

General Hosp., Inc., 698 F.2d 42, 45 (1st Cir. 1983).

____________________

typically employed where a depositor, who also owes

bank,

seeks

to offset

the

-2222

amount

owed

the

by the

It is

money to

amount

deposited.

It is employed where

the parties have reciprocal

or mutual obligations to one another.

The

obligations

plaintiffs

between

the

have

tried

parties

appropriate for a setoff of the units.

argument,

court

for

the offsetting

to

as

characterize

being

mutual

the

and

Under the plaintiffs'

obligations would

exist were

the

(1) to create a damages award in the plaintiffs' favor

the entire amount of the loans and the amount plaintiffs

have paid on the units (minus income) and

(2) then award the

FDIC and HHI the amounts the plaintiffs owe on the promissory

notes.

argue,

With such

offsetting

they should be entitled

obligations, the

to set off

plaintiffs

the units, i.e.,

keep them, in the face of the Bank's insolvency.

See FDIC v.
___ ____

Mademoiselle of California, 379 F.2d 660, 664 (9th Cir. 1967)

__________________________

("It is well settled

that the insolvency of a

party against

whom a set-off is claimed constitutes a sufficient ground for

the

allowance

of

set-off

not

otherwise

available.")

(internal quotations omitted)).

This

argument,

however, is

incongruous

plaintiffs' theory of recovery in this case.

sought rescission, a form of restitution.

the

restitution by

the

cannot be enforced unless

defendant of

with the

Plaintiffs here

Under this theory,

the ill-gotten

gains

the "plaintiff[s] return[] in some

way

what [they] ha[ve] received as a part performance by the

defendant."

Arthur L. Corbin, Corbin on Contracts

___________________

1114, at

-2323

608 (1964); see also

___ ____

Restatement of Restitution

(the

is

general

rule

that

the

right

of

65 (1937)

person

to

restitution

for

transaction is

return,

the

his

person

upon

another

return of,

received as

in

or offer

part

of

to

the

Thus, under the applicable statute, rescission

is allowed upon

See Mass.
___

conferred

dependent upon

anything

transaction).

benefit

"tender of the

security" by the

Gen. L. ch. 110A,

410(a); see also

___ ____

plaintiff.

15 U.S.C.

77l.

Since

triggering the

paid

tender

of

the

obligation of

unit

is

the Bank to

condition

repay the

for

amount

for the units, the plaintiffs cannot also use the units

as setoffs.

The

Bank owes the plaintiffs nothing

plaintiffs relinquish

the plaintiffs

no

their rights to

longer

have

the units.

rights to

the

until the

And once

units,

plaintiffs have no basis to use the units as setoffs.10

the

____________________

10.

Even assuming

that the plaintiffs might,

in theory, be

entitled to set off of the units, that does not automatically

entitle them to do so.
"equity,

prevent

procedural

injustice,

fairness."

B.R. 887, 893

be viewed
remedial

order.

of

goals

of

In equitable terms it could

from the

portion of the consideration paid

awarded to the plaintiffs

mortgage

payments.

was the interest

Assuming

that

the

on the Bank's loans to the plaintiffs was at market

market rate

of the

award is to

give the plaintiffs

of interest on the price of the units as well as

statutory

presented by the
whether

the

have received windfalls

First, a

the

rate, the effect

the

achieve

In re Lakeside Hospital, Inc., 151

_______________________________

that plaintiffs

component

and

(N.D. Ill. 1993).

for the security

interest

A setoff may be denied in order to do

interest award
parties and we

410(a)

"consideration"

of 6%.

allows

This issue

do not reach
for

in such a way.

-2424

the

was not

the issue

calculation

of
of

Second, the plaintiffs were

Although

district

was

general

court in reaching

appropriate,

modified.

the

The

one

method

employed

the rescissionary

aspect

of

the

district court ordered

order

by

the

damages award

needs

a "novation"

to

be

of the

amounts the plaintiffs owed on

the first and second mortgage

notes

to

the FDIC

and HHI.

"substituted contract that

neither

the obligor nor

"novation" is

includes as a

the obligee of

typically a

party one who

was

the original duty."

Restatement (Second)

order,

however,

of Contracts

does

parties and, given the

its order, Limoli

______

not

280 (1979).

provide for

The court's

substitution

cases cited by the district

v. Accettullo, 265 N.E.2d

__________

of

court in

92 (Mass. 1970)

and Levy v. Bendetson, 379 N.E.2d 1121 (Mass. App. Ct. 1978),
____
_________

in which the courts

that

cancelled the notes, it does

substitution

cancellation

of the

rights of the parties

the

order

court

Because

render unclear

an

the

outright

the relative

in the unit, we vacate the

damages and

order

intended.

notes may

which "novates"

rescissionary

district

was

not appear

portion of

notes

along with

granting

remand with

directions

that the

novation

whereby

the

"judgment"

defendants (FDIC, Keezer, Chaban, and HHI) are substituted as

obligors

on the

notes

secured

by

the mortgages

and

the

____________________

given

the

option

of

Because this allows the

keeping the

units

free

plaintiffs to keep what

and

clear.

they bought

and effectively have a return of a significant portion of the

___
consideration

paid for

the unit,

it might

be viewed

as a

potential over-recovery.

-2525

plaintiffs are discharged of any liability on the notes.

Any

units eventually tendered to the judgment defendants would be

subject to the mortgages.11

2.

Lopes and the Rileys.

____________________

Lopes and the Rileys were denied any relief against

the

notes

FDIC because

to

believed

the

improperly

that it could

third

mortgages and

party banks

not "novate" those

correctly concluded

with the debts owed

and

debts.

that it

to the third

promissory

the

court

Although

should not

party banks, it

denied Lopes and the Rileys rescissionary damages

against the FDIC.

difference

had given

disinterested

district court

interfere

they

between

plaintiffs is

The only

Lopes

that Lopes

and

the

Rileys

and the Rileys

and

the

other

paid substantially

more

cash to the defendants

was

not the entire price

when purchasing the

because both Lopes

appear to have given second mortgages to

Rileys

They

were

still

purchasers of

should therefore be able

units.

It

and the Rileys

HHI.

Lopes and the

unregistered

securities.

to recover from

the FDIC and

keeps the respective rights

in the units

____________________

11.

This approach

following the

award relatively

the judgment
units

to

the

defendants would own

subject

properties.

clear.

to

the

If the

Bank, then

first and

as tenants in
second

common the

mortgages

on the

the notes

the FDIC

the first

could

the proceeds

debt.

left over

second mortgage debt.

the transfer,

defendants were to default on

mortgage and use

Anything

After

foreclose on

of any sale

would be

to satisfy

used to

that

satisfy HHI's

Anything remaining after that would be

distributed to the defendants, and presumably could be sorted

out in an action among the defendants.

-2626

the other

defendants the

See Mass. Gen.

___

record does

L. ch.

consideration paid for

110A,

not clearly

410(a).

should hold

and

the

a hearing

Rileys paid

plaintiffs,

Lopes' and

Unfortunately,

reveal the consideration

the Rileys paid for the units.

On remand the

to determine the

for

the

the

units.

the units.

the

Lopes and

district court

consideration Lopes

As

Rileys' entire

with

the other

claims will

be

subject to the ratable distribution rule.

Lopes'

and the Rileys'

claims do raise additional

wrinkles for consideration on remand.

the plaintiffs

setoff of

the amount of

Rileys are

be

obligations,

Cf.
___

to the

no

loans to

mutuality

of

a setoff, or

bankruptcy).

the Rileys

insolvency.

must

was an

the mortgage debt.

Lopes

implicit

and the

implicit setoff because,

the third-party

obligation.

banks, there

Absent

mutual

its equivalent, is inappropriate.

In re Lakeside Community Hospital,

____________________________________

(setoff in

and

from the Bank

not entitled to such an

with respect

would

who borrowed

The novation given to

Unlike the

bear

the

full

151

B.R.

at 891

other plaintiffs, Lopes

cost

of

the

Bank's

If Lopes and

defendants,

notes.

they

will

It may be

banks will refuse to

their

the Rileys convey their

remain

liable on

the case, however,

their

units to the

promissory

that the

third party

allow Lopes and the Rileys

to reconvey

units to the defendants.

-2727

If that occurs, the district

court may want to make clear that their remedy

any

terms provided in

party banks.

their loan agreements

The district court may

is subject to

with the third

also consider treating

such a situation like that in which a purchaser cannot tender

the security because

she no longer owns

damages are awarded.

See Mass. Gen. L. ch. 110A,

___

C.

Interest
________

1.

Post-insolvency interest.
________________________

it.

In

that case,

410(a).

Section 410(a) provides for an award of 6% interest

on the consideration paid

payment of

$200,485

for the security from the

that consideration.

statutory interest

The district

to the

plaintiffs

date of

court awarded

against the

FDIC,

Keezer,

interest

Chaban

from the

respective

and

HHI.

date the

mortgage

That

amount

plaintiffs made

payments until

each of

February 11,

date the plaintiffs submitted their damages motion.

contends

that

the

includes interest

which

interest

award

accruing following the

occurred on May 31, 1991.

ratable

distribution

interest.12

against

rule

represents

their

1994, the

The FDIC

it incorrectly

Bank's insolvency,

According to the FDIC, the

precludes

such

post-insolvency

We agree.

____________________

12.

Because

from the

Keezer, Chaban,

and HHI

ratable distribution

can claim

rule under the

no benefit

National Bank

Act and the FIRREA, the following discussions of interest and

attorneys'

fees apply only

against the FDIC.

to the extent

they were awarded

-2828

As

unsecured

creditors,

the

plaintiffs

share

ratably with all other "unsecured creditors, and their claims

bear

interest

to

Ticonic, 303 U.S.

_______

the

same

at 412.13

rule, but where, as here, the

date,

that

There are

of

insolvency."

exceptions to

interest is part of the

this

claim

itself, interest accruing after

awarded.

See
___

the insolvency should not be

United States ex rel. White

___________________________

v. Knox, 111 U.S.

____

784, 786 (1884); First Empire Bank-New York v. FDIC, 572 F.2d
__________________________
____

1361, 1372

(9th Cir.)("First Empire I"), cert.

_______________
_____

denied, 439
______

U.S. 919 (1978).14

____________________

13.

This rule bears similarity to the rule applicable in the

bankruptcy

context

that

post-petition

available against an insolvent debtor.

interest

U.S. 894 (1982).

to bankruptcy
dividend

requirement

v. Continental
___________

264, 268 (1st Cir.), cert.

_____

This is not surprising.

law to

"decipher the
of

section

not

See Debentureholders
___ ________________

Protective Comm. of Continental Inv. Corp.

____________________________________________
Inv. Corp., 679 F.2d
__________

is

Courts have looked

meaning of
194."

denied, 459
______

the ratable

Texas American
_______________

Bankshares, Inc. v. Clarke, 954 F.2d 329, 338 n.10 (5th Cir.
_________________
______
1992).

14.

Some

courts

unreasonable or

have

suggested

vexatious

that

in resisting

if

receiver

a claim,

or is

is
at

fault in administering the trust, interest may be allowed for

the delay.
F.2d

110,

See Fash v.
___ ____
112

(10th

First Nat'l Bank of Alva, Okl., 89

_______________________________
Cir.

plaintiffs have not shown

1937)

(citing

The

that these exceptions apply.

case upon which the plaintiffs rely for the

post-insolvency

cases).

interest

is

available

The

proposition that

here,

First Empire
____________

Bank-New York v. FDIC, 634 F.2d 1222 (9th Cir. 1980) ("First
______________
____
_____
Empire II"),
__________

cert.
_____

inapposite.
insolvency
would

denied,
______

That case

drew

452
a

U.S.

906

(1981),

distinction between

is

post-

interest as part of a claim against a bank (which

not

be

allowed)

and

interest

accruing

from

an

erroneously denied claim after the ratable amount was paid to

other

creditors (which it

did allow).

Id.
___

at 1224.

plaintiffs, however, seek to include the interest as

the

original

general

claims against

rule regarding

the

Bank.

post-insolvency

-2929

part of

They argue
interest

The

does

"the
not

The

FDIC

does not

challenge

insolvency

interest, but

says

distinguish

between the

portion

pre-insolvency

to

determine the

the district

pre-

court did

not

award representing

the portion

representing post-

We prefer to allow

the district court

appropriate amount

attempt to do it here.

2.

award of

of the

interest and

insolvency interest.

the

Lopes and the Rileys.

____________________

on remand

rather than

Lopes

the interest

The

and the Rileys

calculation and that award

$200,485

interest

apparently includes

payments Lopes

of

were erroneously

award

$20,679.93 of

to

treated in

should be adjusted.

the

other

plaintiffs

interest on the

made for the condominium

mortgage

unit and $28,240.81

interest on the payments the Rileys made.

Those interest

amounts were calculated according to the same method employed

for

the plaintiffs who borrowed from the Bank:

was calculated

was

made.

Rileys

This method

since,

defendants,

the

from the

with

date each loan

to

Lopes and the Rileys

time of the purchase.

ought to

installment payment

was inappropriate for

respect

the

the interest

Bank

Lopes and the

and

parted with a

the

other

lump sum at

Interest for Lopes and the Rileys

have started accruing on the

entire purchase price

____________________

control where the interest

claim, as it is here."
appears to

be

itself is part of

the underlying

That type of post-insolvency interest

precisely the

type

Empire II said should not be allowed.

_________

of interest

that

First
_____

Id.
___

-3030

on the date the

cash was transferred to the

defendants, not

on the

date the payments were made to the third party banks.

Because

we

cannot

record,

on remand

appropriate

determine

that amount

the district

interest

to

be

on

the

court should

awarded

to

present

calculate the

Lopes

and

the

Rileys.15

D.

Attorneys' Fees
_______________

1.

The award.
_________

The FDIC

under section

because the

within the

194 and

argues that the award

410(a) violates the

claims for

of attorneys' fees

ratable distribution rule

attorneys' fees were

meaning of the

not "provable"

National Bank Act at

case law construing that provision.

12 U.S.C.

See Interfirst
___ __________

Bank-Abilene, N.A.
__________________

v. FDIC,
____

777 F.2d

1092, 1097

1985); First Empire I, 572 F.2d at 1372.

______________

insolvency

claim

is

provable

if

(5th Cir.

We disagree.

at

the

time

there is a present cause of action.

of

the

First Empire
____________

____________________

15.

It is also not entirely clear whether the district court

intended

to include

the interest

awards to

Rileys in the order for rescissionary

court denied
the

Lopes and

The court, however,

the rescissionary

give a total award

damages.

damages on

added the full

damages award of

of rescission of $855,434.

district court could have

the

The district

the Rileys rescissionary

410(a)(1) claim.

$200,485 to

Lopes and

$654,949 to
Although the

meant for Lopes and the

Rileys to

benefit just from the interest component of that award, it is

unclear whether that was

so intended, particularly since the

interest is treated

as part and parcel

damages award based

on

appeared

to

410(a)(1).

deny

Lopes

The district

of the award on remand.

410(a)(1) and
and

the

of the rescissionary
the district

Rileys

an

award

court
under

court should clarify this portion

-3131

I, 572 F.2d
_

at 1368

(citing Pennsylvania Steel Co. v.

_______________________

York City Ry. Co., 198 F.

__________________

which

at

proceedings

the

commencement

furnish

provable].")).

721, 738 (2d

In this

of

present

New
___

Cir. 1912) ("Claims

[equitable

receivership]

cause

action

of

case, the plaintiffs

[are

were actively

pursuing their claims against

became insolvent.

for rescission

At

the Bank at the time

the Bank

that time, there were claims

not only

but also

for attorneys' fees.

Accordingly,

the claims for attorneys' fees were provable.

Relying on

argues

there

the

that attorneys'

were

between

Interfirst, 777 F.2d at

__________

no

fees are

not provable

contractual provisions

the plaintiffs and the Bank.

absence of

attorneys' fees

for

here because

attorneys' fees

According to the FDIC,

contractual contingency

before the

1097, the FDIC

fee provisions

for

insolvency shows that

no claims

for attorneys' fees existed before the insolvency.

We reject

the FDIC's argument that the

claims for attorneys' fees

did

not exist prior to the insolvency because the contingency fee

agreement between the plaintiffs

executed

and their attorneys was not

until after the insolvency.

the plaintiffs had an obligation

The FDIC is aware that

to pay their attorneys, and

in fact did pay their attorneys substantial fees, during

the

period

for

prior

to the

insolvency.

-3232

Plaintiffs' claims

attorneys' fees certainly

did exist by

statute, and did

so

well before the insolvency.16

The

provable

FDIC

also

argues

that the

claims

are

not

because (1) there was no collateral fund to pay the

fees (only the general assets of

the estate to be shared

by

all unsecured creditors), and (2) the fees were not fixed and

certain at the time the suit was filed against the FDIC.

the notion

ratable

claim

of provability

distribution.

is

distribution

inquiries."

provable

"Though

under

is 'ratable'

See

is not

the same

as the rule

related concepts,

section

194,

represent two

and

But

of

whether a

whether

entirely different

Citizens State Bank of Lometa

v. FDIC, 946

___

_____________________________

____

F.2d 408, 413 (5th Cir. 1991).

The existence

relevant

to

ratable

of a collateral fund,

distribution,

determining provability;

and

is

the FDIC's

not

while perhaps

relevant

to

argument that

the

attorneys' fees must have been absolute, fixed, due and owing

for purposes

correct.

of ratable distribution to be "provable" is not

Id. (provability of
___

claims is not

absolute, fixed, due-and-owing language

concept of a "ratable distribution").

equated to the

which applies to the

Even if the claims for

____________________

16.

To the extent Interfirst suggests

__________

that statutory claims

for attorneys' fees should be treated differently than claims

based upon contract,

see Interfirst,

777 F.2d

at 1097

n.2

___ __________
(stating
does

that the

state law

not create a claim

providing for

for purposes of

attorneys' fees

applying the First

_____

Empire I test), we disagree.

________

-3333

attorneys' fees here were "contingent," which they are not, a

claim is provable if

by recognized methods

its "worth or amount can

of computation."

be determined

First Empire I, 572

_______________

F.2d

at 1369.

The

lodestar

approach to

calculation

of

attorneys' fees is a recognized method of computation.

Nevertheless

modification.

The

the

attorneys'

rule of

fees award

ratable distribution

requires

"requires

that dividends be declared proportionately upon the amount of

claims

as they stand on

State Bank,
__________

has

946 F.2d at 415.

accrued at

apportionment

the date of

the

of

insolvency."

The amount of

time of

insolvency

dividends.

See
___

Continental Nat'l Bank, 84

_______________________

F.2d

the claim that

is the

Kennedy
_______

592, 597

Citizens
________

basis

v.

for

Boston_______

(1st Cir.

1936)

("The amount of the claim may be later established, but, when

established, it must be the amount due and owing at

the time

of

the declaration

entitled,

with

of insolvency,

the

claims

ratable distribution of the

White, 111
_____

U.S. at

787

of the

as of

it is

creditors,

to a

assets of the bank."); see

___

also
____

("It was

other

which time

clearly right

. .

to

ascertain from the judgment how much was due on this claim at

the

date

of

accordingly.").

the

insolvency,

and

make

the

The availability of attorneys'

distribution

fees for an

unsecured creditor depends upon whether the fees accrued pre-

insolvency or

whether they accrued

incurred prior to the

post-insolvency.

Those

insolvency are recoverable while those

-3434

incurred afterwards are not.

Cf. Fash v. First Nat'l Bank of

___ ____
___________________

Alva Okl., 89 F.2d 110, 112 (10th Cir. 1937) (post-insolvency

_________

attorneys' fees not available).

We believe this situation

requests

for interest

Interfirst,
__________

777 F.2d

post-insolvency

and

at

attorneys'

is not only analogous to

other costs

1097 (relying

fees);

Fash,
____

of collection,

on Ticonic
_______

89

F.2d

see
___

to deny

at

112

(treating

interest

principle); cf.
___

B.R.

and

attorneys'

fees

under

the

same

also In re Continental Airlines Corp., 110

____ __________________________________

276, 279-80

(Bankr. S.D.

Tex. 1989)

(drawing analogy

between attorneys' fees and post-petition interest), but also

is

analogous

bankruptcy

to

requests

context.

for

attorneys'

Pre-petition

fees

attorneys'

in

the

fees

of

unsecured creditors against an insolvent debtor are generally

allowed

under

applicable

attorneys'

the

state

bankruptcy

law

so

the

and

fees are generally not allowed.

1995) (denying

creditors'

to

provides,

Southeast Banking Corp., 188

________________________

Fla.

code

under

attorneys'

fees

See, e.g., In re
___ ____ _____

bankruptcy

incurred

the

post-petition

B.R. 452, 462-64

the

extent

(Bankr. S.D.

code

unsecured

post-petition

but

allowing attorneys'

fees incurred pre-petition); but

___

re United Merchants and Mfrs., Inc., 674 F.2d

_____________________________________

Cir.

1982) (unsecured creditor

including counsel

bargained-for

term

loan

-3535

134, 137 (2d

can recover collection costs

fees where such costs

of a

cf. In
___ __

were a specifically

contract).

Plaintiffs

are

entitled to attorneys' fees

of the

insolvency but

following

the

that had accrued as of

are not entitled

insolvency.17

Because

the date

to attorneys'

we

are

unable

fees

to

determine the amount of attorneys' fees accruing prior to the

insolvency, we

leave that inquiry

to the district

court on

remand.

2.

The

Fee enhancements.
________________

plaintiffs

argue that

they were

entitled to

either a contingency fee enhancement or a results enhancement

to

the attorneys' fee award.

is reviewed

for

an abuse

of

The district court's fee award

discretion, see
___

Brewster
________

v.

Dukakis, 3 F.3d 488, 492 (1st Cir. 1993), and there was none.
_______

As

contingency

the

plaintiffs

enhancement in a

concede, the

argument

for

statutory fee-shifting context

is a difficult one, even if the enhancement requested here is

based on state rather

City of Burlington
__________________

(generally

than federal law, in the

v. Dague,
_____

disapproving

of

112 S. Ct.

stated that where the

2638, 2643

(1992)

contingency enhancements

federal fee-shifting statutes).18

have

aftermath of

The Massachusetts

federal and state

under

courts

law causes of

____________________

17.

The plaintiffs'

motion, filed after

oral argument, for

attorneys' fees incurred on appeal is therefore denied.

18.

This

is not

common

fund

situation.

Cf.
___

In re
______

Washington Public Power Supply System Securities Litigation,

____________________________________________________________
19

F.3d

1291,

1299-1301

(9th

Cir.

1993)

(stating

the

rationale of Dague
_____
that district

did not

apply in common

court had the discretion

fund cases

and

to allow contingency

enhancements in common fund case).

-3636

action are similar, the attorneys' fees "in both fora should,

for

the

most part,

Fontaine v.
________

be

calculated

Ebtec Corp., 613

___________

in

a similar

N.E.2d 881, 891

manner."

(Mass. 1993).

The state law

such an

counterpart should not

be construed to

enhancement absent direction from

Plaintiffs have

cited no state cases

enhancement for

a successful securities law

the

fee-shifting

decline

to predict

provision

of

the creation

allow

the state courts.

allowing a contingency

action based on

section 410(a)(1)

of such

a state

and

we

law rule

here.

results enhancement is also inappropriate.

an enhancement

is a "tiny"

exception to the

See Lipsett v.
___ _______

Blanco, 975
______

F.2d 934, 942

The rates provided to the

Such

lodestar rule.

(1st Cir.

1992).

attorneys in this case "adequately

reflected the lawyers' superior skills and the superb results

obtained."

Id.
___

E.

Reconveyance to Defendants
__________________________

In

its damages

order the district

that plaintiffs accepting the

units

to all

district court

deeded

The

among

plaintiffs, who

otherwise.

The

rather than just

presumably

defendants

Where the

gets

FDIC contends

discretion in ordering

to all the defendants

the

rescission award reconvey

the defendants.

abused its

court provided

debts owed

-3737

units,

on

that the

the units

to the FDIC.

are indifferent

the

the

have

the units

as to

not

who

argued

have been

novated

in the

manner

prescribed here,

units

solely to the Bank

other

defendants.

conveyance of

might prejudice the

The

district court

did

the

rights of the

not abuse

its

discretion on this matter.

V.

For the

Conclusion

foregoing reasons, we affirm

______

the district

court's judgment of liability but vacate and remand the order

______
______

on

damages,

novation,

attorneys'

fees

and

interest,

as

discussed above, for further proceedings consistent with this

opinion.

It is so ordered.
________________

-3838