USCA1 Opinion

United States Court of Appeals

For the First Circuit
____________________
No. 95-1997
PETER M. SCHULTZ AND PAMELA A. SCHULTZ,

Plaintiffs, Appellants,

v.

RHODE ISLAND HOSPITAL TRUST

NATIONAL BANK, N.A., ET AL.,

Defendants, Appellees.
____________________

No. 95-2113
BOWDOIN CONSTRUCTION CORP.,

Plaintiff, Appellant,

v.

RHODE ISLAND HOSPITAL TRUST

NATIONAL BANK, N.A., ET AL.,

Defendants, Appellees.
____________________

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

Plaintiffs, Appellants,

v.

RHODE ISLAND HOSPITAL TRUST

NATIONAL BANK, N.A., ET AL.,

Defendants, Appellees.
____________________

APPEALS FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

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

___________________
[Hon. Robert E. Keeton, U.S. District Judge]
___________________
[Hon. Patti B. Saris, U.S. District Judge]
___________________

____________________

Before

Torruella, Chief Judge,

___________

Campbell, Senior Circuit Judge,

____________________

and Lynch, Circuit Judge.

_____________

____________________

Edwin A. McCabe,
________________
Davis III, and
_________

with whom

McCabe Brown Sutherland, Joseph

________________________ _______

Lane, Altman & Owens were on

_____________________

brief, for

plaintif

appellants.

Joseph L. Kociubes,
____________________

with

whom

Peter Alley,
____________

Casper, and Bingham, Dana & Gould were

______
_______________________

on brief,

Denise Jeffer
_____________
for Rhode

Isl

Hospital Trust National Bank.

Allen N. David, Elizabeth Z. Holmes,

_______________ ____________________

and Peabody & Arnold,

_________________

brief for Federal Deposit Insurance Corp. as receiver of Coolidge B

and Trust Co.

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

_________________ ____________________
__________________

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

____

____________________

August 22, 1996

____________________

LYNCH,

Circuit
Judge.
_______________

consolidated for

appeal, arise out

venture involving the

These

three

of a failed

actions,

real estate

purchase and redevelopment of

the Sea

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

a federally

registered public offering,

condominium unit deeds

In

investors purchased

and "pooled income" interests

in the

Sea

Crest

project.

One of

disclosed in the prospectus,

terminated

aggregate

and

all

the

offering's

features, as

was that the offering would

investor

deposits

refunded

if

be

the

amount of investments sold did not reach a minimum

subscription level

asserted that

Rhode

("MSL") by

a set

Island

Hospital

("RIHT"), the lender that

of the Hotel

deadline.

Trust

Plaintiffs

National

financed the developer's

and served as the escrow

Bank

purchase

agent responsible for

holding investor deposits, was liable to them for purportedly

failing to determine that the MSL requirement had not in fact

been satisfied

by the requisite

concluded, as a

matter of law,

against RIHT

date.

district courts

that the plaintiffs'

for fraud, negligent

of contract, and

The

claims

misrepresentation, breach

violations of the Racketeer

Influenced and

Corrupt

seq.,
____

Organizations Act

were all

deficient.

("RICO"),

We agree

18

U.S.C.

that plaintiffs

established no legal basis for holding RIHT liable

losses.

Accordingly, we affirm.

-33

1961

et
__

have

for their

I.

Factual Background
__________________

In the

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

purchase and

renovate the

Sea Crest

Resort and

Center, a large beach resort on Cape Cod.

revitalize

plan

and

Marchand sought to

the hotel as a convention-oriented facility.

involved converting the

then

Conference

selling

the

Sea Crest into

individual

investors, together with interests

be generated

from the

resort.

The

a condominium,

condominium

units

to

in the pool of

income to

The condominium

units and

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

securities

in

public

offering.

The

issuer

of

the

securities would

be Marchand's development

Sea

Crest Realty Sales

was

the

Corp. ("Laurel"), of

sole shareholder.

which Marchand

Laurel's purchase

Crest, for $19.4 million, would be financed

investors and a bank loan from RIHT.

of $40.5 million and

company, Laurel-

of

the Sea

through sales to

With projected expenses

total expected gross proceeds

from the

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

profit of $4.5 million.

On

statement

proposed

September 12,

and

1986,

prospectus

with

Laurel filed

the

SEC,

registration

describing

the

offering of 266 "condominium hotel interests."

The

prospectus stated that the offering would be conditioned upon

a minimum level of investor participation:

-44

Unless 60
qualified

Hotel Interests are subscribed

investors

("Minimum

Level") within 60 days

the

Registration

Prospectus

for by

Subscription

of the effective date

Statement

of

which

of
this

is a part, but in no event later than

December

31,

1986,

withdrawn

and

all

this
funds

offering

will

will

returned

be

be

promptly to subscribers.

The

prospectus

also

stated that

every

investor

would be

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

price

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

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

bearing

National

account . . .

at the

Bank . . . on behalf

Rhode

Island Hospital

of Investor."

Trust

The prospectus

named RIHT as escrow agent for the offering.

As Laurel waited for

declared effective by

the registration statement to

the SEC, it

needed to purchase the Sea Crest.

issued a

commitment letter

secured the financing

be

it

On November 14, 1986, RIHT

to Laurel

approving a

fourteen

million dollar first mortgage construction loan to be used by

Laurel

in acquiring and

RIHT's commitment,

the

"presale" of

renovating the Sea

like the

a minimum

offering, was

number of

Sea

Crest facility.

conditioned upon

Crest interests

prior

to December 29,

1986, the

expiration date

of RIHT's

commitment letter.1

____________________

1.
than

RIHT's presale

requirement was, in fact,

the MSL requirement.

The commitment

more stringent
letter specified

that "[p]rior to closing, a minimum of 80 units must be under

written agreement

of purchase-sale with a 10% non-refundable

deposits [sic]," and that those 80 units must account for "no
less than $13.6 million" in gross proceeds.

-55

As of the date

to

Laurel, however,

that RIHT issued its

the

registration statement.

was

not declared

SEC had

yet

In fact, the

effective by

commitment letter

to approve

Laurel's

registration statement

the SEC

until December

12,

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

the

MSL set

in the

presales required by

more

time.

obtain

timetable

prospectus

RIHT.

Laurel sought

new commitment

and the

It was clear

minimum number

that Laurel needed

to restructure the

agreement

of

from RIHT,

offering and

with

for meeting the minimum presale requirement.

a new

RIHT

agreed to renegotiate.

As

Laurel

and RIHT

neared

agreement on

new loan

commitment,

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

amendment

to

its

amendment

established a new deadline

MSL requirement.

condition

the

original

It

registration

on

The

for Laurel to meet the

also restructured

offering

statement.

the requirement

minimum

aggregate sales, rather than a minimum

dollar

amount

to

of

number of unit sales.

The amended prospectus explained:

Unless

Hotel

Interests

aggregate purchase
qualified

of

price are

investors

$6,000,000
subscribed for

("Minimum

in
by

Subscription

Level")

within 120 days of the effective date[2]

of

Registration

the

Prospectus

is

Statement

part,

this

of

which

offering

this

will be

____________________

2.

The 120th day after December 12, 1986, the effective date

of

the registration

statement

fell on

April

11, 1987,

Saturday.

-66

withdrawn

and

all

funds

will

be

returned

promptly to subscribers.

The

amended

prospectus's

prospectus

representation

left

that

unchanged

each

the

investor

original

would

be

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

selling price

of the

unit to be

purchased, which

would be

deposited in an escrow account held by RIHT.

RIHT

30,

issued a new commitment letter to Laurel on March

1987.

give Laurel

an 18.3

million dollar loan, conditioned upon the presale of

only 40

units

This

time, RIHT

agreed to

with a minimum aggregate

each presale

deposit.

presale

selling price of $6 million,

requiring a ten percent

Laurel was

condition

required to

by

no later

nonrefundable investor

satisfy

than

April

the new

40-unit

10, 1987,

the

expiration date of the new commitment letter.

Apart

from RIHT's

lending

the bank's only role in the Sea

escrow agent.

Nor did

it

RIHT did

participate

relationship with

Laurel,

Crest offering was to act as

not sign the registration statement.

in

promoting the

offering

or

in

selling or soliciting subscriptions.

agent were

to

be governed

between Laurel and

of

the

a written

escrow

agreement

RIHT, addressed to the investor.

agreement,

registration

by

RIHT's duties as escrow

annexed

statement,

subscribing investor.

as

was

As will

an

to

exhibit

be

to

provided

be discussed, there

A copy

Laurel's

to

each

is some

dispute as to the particular form of agreement by whose terms

-77

RIHT

agreed to be

bound.

assumed at most a duty

until

"[Laurel]

$6,000,000 in

have

shall

It

is clear, however,

that RIHT

to hold investors' deposits in escrow

verify

to

the

aggregate purchase price

been subscribed for and received

Bank

that

for Hotel

. . .

Interests

as required under the

Registration Statement . . . ."

As the offering proceeded,

agent

(Broad Reach

Capital),

Laurel, through its selling

collected

agreements for individual Sea Crest

sale

agreements").

representations

purchase and

sale

condominium units ("unit

Notwithstanding

the

prospectus's

that investors would be required to tender a

ten percent non-refundable "escrow

deposit" upon subscribing

to

the offering,

Laurel and

Broad

promissory notes for ten percent

________________

lieu of

cash deposits --

who

signed unit sale

Such

cash deposits

Reach Capital

of the purchase price -- in

from almost half of

agreements prior to

as were

accepted

the MSL deadline.

tendered by the

placed in an escrow account at RIHT.

the investors

investors were

But as the deadline for

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

been deposited into the RIHT escrow account.

RIHT and Laurel conducted

9,

1987, just

prior to

commitment letter.

copies of the

the

At the

their loan closing on

expiration date

closing, RIHT was

unit sale agreements

An officer of the bank

of the

April

March

provided with

that had been

executed.

counted the sale agreements to verify

-88

that there had been

RIHT's

loan

amount of

at least 40

commitment letter)

sales to

requirement had been

the prospectus).

units sold (as required

and

verify that the

tallied

No one

the aggregate

six million

met (as set forth in

in

dollar MSL

the agreement and

at RIHT undertook to verify whether

there

was a

ten percent

subscription.

subscriptions

Having

and $6

deposit

in escrow

satisfied itself

million in

achieved, RIHT proceeded

that

aggregate

to close its

for each

at

unit

least 40

sales had

loan with Laurel

been

and

thereafter released the escrowed investor deposits to Laurel.

Laurel purchased the

Sea Crest and separately

closed on its

sales of individual condominium units to investors.

In May

("Bowdoin")

renovation

1987, Laurel hired

to serve

as

the

of the Sea Crest.

Bowdoin Construction

general

contractor

for

Corp.

the

Pursuant to a letter of intent

from Laurel, Bowdoin began construction work and arranged the

necessary subcontracts.

Bowdoin

continued its

Based

on a

construction

decision by

work through

Marchand,

the

1987

summer season, causing

a fall-off in revenues to

the resort

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

By

late

September

financial strain.

even

1987,

Laurel

was

under

severe

It had stopped making payments to Bowdoin,

though Bowdoin continued

construction.

On

October 1,

RIHT downgraded the credit status of its loan to Laurel.

stock

market crash later

that month only

-99

The

worsened matters,

and

in November

Laurel and RIHT

loan.

1987, Laurel

defaulted

discussed restructuring

on the

RIHT loan.

or refinancing

the

Bowdoin inquired about the status of Laurel's funding.

After allegedly being

assured that it would

be paid through

new financing from RIHT, Bowdoin continued with construction.

In the

meantime, restructuring

negotiations between

Laurel

and RIHT had ended unsuccessfully.

By

January

construction, it had

$1 million.

SEC

when

Bowdoin

finally

ceased

incurred unreimbursed expenses of

A month later, Laurel filed a Form 8-K

disclosing

indefinitely

1988,

that

suspended,

the

Sea

with

Crest

only

58

offering

of

the

over

with the

would

total

be

266

condominium units having been sold.

of lawsuits were filed.

collect on its loan.

In April 1988, RIHT sued Laurel

In July 1988, Bowdoin

for breach of contract and

in state

court, but

based, allegedly,

was Bowdoin's

debts.3

Soon afterward, a number

filed an action

enforcement of a mechanic's

then voluntarily

dismissed the

on Laurel's representation

best chance

to

of recovering any

lien

action

that doing

of its

so

unpaid

Ultimately, Bowdoin collected only a fraction of the

amount owed to it by Laurel.

Laurel, RIHT, and others

were

____________________

3.

After

Bowdoin

dropped

the

discharged the lien, RIHT sold

state

court

lawsuit

and

its interest in the Sea Crest

loan, at a

$5.7 million loss, to

Coolidge Bank (who

had to

that point owned a participation interest in the loan).

-1010

named in

suits filed

by investors, as

instigated action by Bowdoin.

II.

Procedural Background
_____________________

well as

in a

newly

A.
__

District Court Proceedings

__________________________

Three

separate

cases

purposes of this appeal.

and

have

in

the

Sea Crest

and

Allenby
_______

v.

RIHT,
____

offering.4

Bowdoin Constr. Corp. v. RIHT,

______________________
____

Schultz
_______

consolidated

Two of the cases, Schultz

_______

Allenby Enterprises, Inc.

___________________________

investors

been

are

v. RIHT
____

brought

The third

asserted

claims

by

case,

is brought by Bowdoin.

plaintiffs

for

The

against

Laurel, RIHT and several others for alleged violations of the

federal securities

fraud, negligent

laws and civil

RICO, and for

misrepresentation, breach of

breach of the covenant

of good faith and fair

Bowdoin complaint asserted

_______

common law

contract, and

dealing.

The

claims against Laurel, RIHT,

and

others for

violations of civil RICO, breach of contract, and

breach of the covenant of good faith and fair dealing.

In

October

1993,

before

the

Schultz
_______

action

was

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

____________________

4.
five

The plaintiffs in the Schultz action purchased a total of

_______
condominium

units in

April

1987

(prior to

the

MSL

deadline), at an aggregate purchase price of approximately $1

million.

There

Collectively,

are

they

38 plaintiffs
purchased

aggregate purchase price

$1.5 million of

33

in the

Allenby action.
_______

condominium units

of some $5 million.

an

Approximately

the Allenby plaintiffs' purchases

_______

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

_____

-1111

at

were made

reached

a settlement

agreement with

certain other affiliated

against

parties, and

them, with prejudice.

received a promise from the

Laurel, Marchand,

dismissed all

In exchange,

and

claims

the plaintiffs

settling defendants to waive the

attorney-client privilege and to provide interviews and trial

testimony

as requested by the

plaintiffs.

No money changed

hands.

The Schultz
_______

action proceeded to trial against RIHT and

the

other

that

had provided

financing to some

of the investors) in January

1994, before

Chief Judge Tauro.

The plaintiffs presented

testimony,

the end

remaining

defendant (a

including the testimony

of the

plaintiffs' case,

judgment as a matter of law.

the

district

court

In

bank

twelve days of

of Eugene Marchand.

the defendants

At

moved for

its memorandum of decision,

concluded that

Central Bank
_____________

v. First
_____

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

________________

of

the plaintiffs' claims for aiding and abetting securities

fraud under Section 10(b)

1934.

The

failed to

law claims

court also

of the Securities Exchange

concluded

present adequate evidence

or their RICO

that the

Act of

plaintiffs

on any of

claim, and granted the

had

their common

motion for

judgment as a matter of law.

Thereafter,

judgment motions

Judges Keeton

filed by

actions, respectively.

and

RIHT in

Saris granted

summary

the Allenby and

_______

Bowdoin
_______

In deciding the Allenby motion, Judge

_______

-1212

Keeton, discerning no material

in

Allenby
_______

and Schultz,
_______

difference between the issues

followed

Judge

Tauro's decision,

based both on an independent assessment of the

matter of stare decisis.

_____________

asserted

aiding

RICO

In Bowdoin, in which the plaintiff

_______

violations

and abetting

summary judgment in

case and as a

predicated

securities fraud,

upon

allegations

Judge

favor of RIHT, on the

of

Saris entered

dual grounds that

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

plaintiffs had,

in any

event, failed

to adduce

sufficient

evidence of a "pattern" of racketeering activity.

B.
__

Posture on Appeal
_________________

The

parties informed us at oral argument that the only

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

purposes

of this

appeal, is

therefore, to those

RIHT.5

We limit

claims seeking to hold

our review,

RIHT responsible

for the plaintiffs' alleged injuries.

In

each of

the three

district

court's

entry

cases,

of judgment

we review

as

de novo
_______

matter of

the

law.

Because the appeals largely raise the same dispositive issues

(albeit on somewhat different

only as necessary.

records), we distinguish

them

We look to whether, viewing the record in

each case in the light

most favorable to the plaintiffs, any

____________________

5.

Plaintiffs'

although

one

counsel
other

plaintiffs would

stated

party nominally

be content

to have

turn solely upon a determination

against RIHT.

at

oral
remains

argument
in

this court's

that,

the case,
decision

of the merits of the claims

-1313

reasonable jury

Fed.

R. Civ.

could find

P.

(Allenby; Bowdoin).
_______ _______

the

50(a)

in the plaintiffs'

(Schultz); Fed.
_______

Having assessed the

R.

favor.

Civ. P.

See
___

56(c)

merits of each

of

plaintiffs' theories of liability under this standard of

review, we now affirm.6

III.

Breach of Contract
__________________

RIHT's

only

plaintiffs arose

the Sea Crest

relationship

out of the

offering.

with

the

bank's role as escrow

The Schultz and

_______

investor

agent in

Allenby plaintiffs
_______

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

the

terms of the

written escrow arrangement,

in accordance

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

investors.

RIHT

More specifically,

violated the

terms of

the plaintiffs

the escrow

contend that

agreement

when, on

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

____________________

6.

RIHT

broadly

argues,

independent of the
the plaintiffs'

as

basis

for

underlying merits of these

claims in

all three cases

affirmance
actions, that

are barred

as a

result of their settlement with, and prejudicial dismissal of

their

claims against, the

contends that the

Laurel defendants.

judgment entered by the

RIHT further

district court in

Schultz, if affirmed, constitutes res judicata in relation to

_______
the

plaintiffs' claims in

and

that the

non-party

the Allenby and

_______

latter two actions

claim preclusion.

Bowdoin actions,
_______

are barred on

See Gonzalez v.
___ ________

a theory of
Banco Central
_____________

Corp., 27 F.3d 751, 755 (1st Cir. 1994); see also Becherer v.
_____
________ ________
Merrill Lynch, Pierce, Fenner & Smith, Inc., 43
_____________________________________________

F.3d 1054,

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

_____ ______
decline

the

unsettled area

invitation

to venture

of the

law, and rest

merits of the three cases before us.

-1414

into

this

We

complex and

our affirmance

on the

though,

allegedly, the

offering's MSL

requirement had

not

been satisfied.7

There

escrow

is

a threshold

dispute

agreement that governs.

as

to the

particular

Plaintiffs contend that RIHT

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

parties as the "long-form" escrow.

RIHT replies that it was

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

but argues, in the alternative, that

the long-form escrow,

even if it was bound by

the record establishes that

no breach

occurred.

The short-form

exhibit

escrow

agreement

was attached

as

an

to the registration statement that Laurel filed with

the SEC in

September 1986,

November 1986.

TO

and had been

signed by RIHT

in

The short-form provided, in pertinent part:

PROSPECTIVE PURCHASERS

OF HOTEL INTERESTS IN

SEA CREST CONDOMINIUM

Rhode
(the

Island

Hospital Trust

"Bank") . . . having

National

Bank

been requested to act

____________________

7.

The

district court in

the Schultz action

_______

reasoned that

only those investors whose funds were actually deposited into

the

escrow

account

compliance with the

the two plaintiffs
percent
to

had

standing

escrow agreement.

to

challenge

RIHT's

The record shows that

in the Schultz action

_______

did not pay a

ten

cash down payment, instead signing a promissory note

Laurel for that

amount.

Most

of the plaintiffs

in the

Allenby
_______

case, on

deposit,

but a

$975,000

in

the

other

number of

hand, did

the units

aggregate sales

deposit

having

been

Allenby
_______

plaintiffs

--

tendered.
purchased

deadline

had passed.

While

point to

be forceful,

we need

pay

a ten

percent

-- representing

were sold

without

Furthermore,
their

units

we find

the

not rely

a cash

some

after
_____

of the
the

on

it, given

-1515

be

made by

for deposits to

prospective purchasers

MSL

district court's

disposition of the merits of the issue.

as escrow agent ("Escrow Agent")

about

("Buyer") of

our

Hotel

Interests

Condominium
Corp.

in

the

from Laurel-Sea

("Seller") . . .

Crest Realty

does hereby

request and agrees to hold

to

above-referenced
Sales

accept such

deposits made payable

the Sea Crest Condominium Escrow Account, and

received

by it,

upon

conditions to which
bound

by

terms

and

Buyer and Seller agree to be

executing

("Agreement")

the following

for

the

Unit

Buyer's

Sale

Hotel

Agreement

Interest,

to

which acopy of this escrowletter will be annexed.

1.

The Bank agrees to maintain

(the "Deposit")

at its bank

such deposit

for the

benefit of

Buyer and Seller . . . .

2.
is

In

the event

consummated,

acceptance of

on

behalf

as

a deed

written statement

the [Unit
evidenced

to the Hotel

to that effect

of Buyer

Sale] Agreement

Seller,

Buyer's

Unit, or

by

executed by or
Escrow

Agent

shall pay over the

Deposit to Seller, and

shall

pay

as may

such interest

and

by

have accrued thereon,

to Buyer. . . .

The long-form

signed

escrow agreement was

filed with

the SEC

and

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

dispute.

the

The first paragraph of the

same

as

that

in

long-form agreement was

the short-form,

substantially different.

but

the

The long-form agreement

body

provided,

in relevant part:

1.

The

Bank agrees to maintain such deposit

(the "Deposit")
Buyer

. . . .

The Deposit

the Bank until

the Bank

purchase

that

price

subscribed
the

for the

and Seller

held by
to

at its bank

(a) $6,000,000

for

for and

Registration

Subscription

the Seller

Level")

received

been

effective

achieved
date

of

have

(the

thereafter

been
under

"Minimum
disbursed

Subscription Level has

within
the

aggregate

as required

Statement
and

shall be

shall verify

Hotel Interests

. . . or (b) such Minimum

not

benefit of

in

120

days

Registration

-1616

of

was

the

Statement

with the Securities and Exchange

the event the
achieved

Minimum Subscription Level

within

deposits and

Commission.

such

120

day

interest accrued

In

is not

period,

all

thereon shall

be

promptly returned to Buyer.

2.

In

Level is
is

the

event the

achieved and the [Unit

consummated,

acceptance of

as

a deed to

behalf

of

Buyer

shall pay over the

pay such interest
to Buyer. . . .

Subscription

Sale] Agreement

evidenced

written statement to that

on

Minimum

the Hotel

by

Buyer's

Unit, or

by

effect executed by

or

and Seller,

Escrow

Agent

Deposit to Seller, and

shall

as may

have accrued

thereon,

Both

the long- and

short-form escrow agreements

ended with

the following clauses:

8.

Escrow

responsibility
delivery

of

Agent assumes
hereunder
the

no obligations

other

Deposit,

than

and

to

or
make

any

earnings

that a

copy of

thereon, as herein provided. . . .

It is

understood and agreed

this instrument will

the

[Unit

Sale]

be annexed as an exhibit to

Agreement.

entitled

to

rely

upon this

with the

same force

Buyer
escrow

and effect

shall

be

agreement,

as if the

Bank

had contracted directly with Buyer. . . .

The crucial difference between the two

in the description

RIHT's duty

long-form

of the

to release

conditions that

any escrowed funds

agreements lies

were to

trigger

to Laurel.

The

agreement linked RIHT's duty to release funds from

escrow upon the

meeting of the

MSL requirement; the

short-

form agreement did not.

There

is no

both the short____

when.

dispute

that RIHT

at some

and long-form agreements.

The plaintiffs

argue that RIHT

point signed

The question

became bound

is

by the

-1717

long-form agreement before

the April 1987 MSL

deadline, and

that

RIHT

therefore

respect to

the satisfaction

releasing

concedes

had a

the funds

that

it

duty

of

of the

in escrow.

signed the

"verif[ication]" with

MSL requirement

RIHT,

on the

long-form

point, but not before June 1987.

before

other hand,

agreement

at some
____

Thus, RIHT asserts that, as

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

which

makes no

mention

accepting the plaintiffs'

we conclude

of

the

MSL

requirement.8

rendition of the record,

that no rational

trier of fact could

Even

however,

find that

RIHT committed a breach.

We

look first to

escrow agreement.9

to

the express

terms of

Under that agreement, RIHT

"hold deposits made payable to

the long-form

was required

the Sea Crest Condominium

Escrow Account,

and received

by it"

until "[Laurel]

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

price

for Hotel

Interests

have

shall

in aggregate purchase

been

subscribed

for

and

____________________

8.

On

the

one

hand,

RIHT

has

provided

an

unrebutted

attestation that the only escrow agreement on record with the

SEC as

of April 1987 was

the short-form agreement.

On the

other hand, there is some evidence (albeit circumstantial) to

suggest that

RIHT had

agreement prior to April

long-form agreement

agreed to be
1987.

the long-form

example, a copy of

(lacking RIHT's signature)

to a letter from Marchand's

1987, in which

For

bound by

the attorney

the

was attached

attorney to RIHT dated March 16,

proposed to

RIHT a

particular

procedure for dealing with interest accruing to the Sea Crest

escrow account.

9.

The

parties

appear

to

agree

governs.

-1818

that

Massachusetts

law

received as

'Minimum

required under

Subscription

unambiguously

the Registration

Level') . . . ."

limits RIHT's obligations

holding deposits

"received by it"

Statement (the

This

as escrow

language

agent to

until Laurel "verifi[ed]"

that $6 million in subscriptions had been received.

The record

before us

permits no genuine

RIHT satisfied its limited duties

dispute that

under the agreement.

The

evidence is

clear that RIHT

did not release any

funds that

had been deposited into the Sea Crest escrow account until it

had been provided by Laurel

copies of

executed unit

face value in excess of

(prior to the MSL deadline) with

sale agreements

$6 million.

with an

aggregate

Plaintiffs concede that

there is uncontradicted testimony to this effect.

Plaintiffs' argument

more.

They contend that

funds in

escrow on April

is that

RIHT was required

to do

RIHT should have refused to release

9, 1987

on the grounds

that: (i)

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

by ten percent cash

deposits; (ii) Laurel had

pledged seven

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

obtained from Wedgestone Realty Investors Trust, the proceeds

of which were applied to

Laurel's purchase of the Sea Crest;

and (iii) the $6

million in unit sales that were

the MSL computation had not actually been received

before the MSL deadline.

-1919

applied to

by Laurel

The

response

fairly be

read to

created a

bar to

Under

is

that

the

say that any

the

escrow

one of

disbursement of

agreement

cannot

these circumstances

the escrowed

funds.

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

Sea Crest offering

was a limited one, narrowly

written agreement.

The escrow agreement

RIHT

duty to

a generalized

police

defined in a

did not impose

the offering.

To

on

the

contrary, the agreement disclaimed any duty to the parties in

escrow "other than to make delivery

of the [escrowed funds],

and any earnings thereon."

Thus, although

the fact that

Laurel sold a

number of

Sea Crest units without taking a ten percent deposit from the

purchaser was arguably at odds

no

with the prospectus, there is

language in the escrow agreement conditioning the release

of

any escrowed funds

totalling

minimum sales

full

upon RIHT's having

ten

percent of

amount.

Laurel's "bridge"

the

Similarly, there

loan from Wedgestone

received deposits

six

million dollar

was nothing

about

that obligated RIHT,

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

been met, or that funds

in escrow were otherwise required to

be returned to investors.

Finally, the

plaintiffs' argument

that $6 million

actual funds had not been "received" prior to

of escrow goes nowhere.

that

RIHT itself was

in

RIHT's closing

To the extent that plaintiffs argue

required to

-2020

be in

receipt of

the $6

million,

the argument is

the escrow agreement.

be read to

at

all, the

inconsistent with the

To the extent that

require that the $6 million

agreement plainly

language of

the agreement can

have been "received"

envisions that

Laurel who would receive the funds, and who

______

it would

be

would thereafter

verify the same to RIHT.

In any

event,

RIHT's alleged

failure

to verify

the

satisfaction of the purported

help

the

plaintiffs'

"receipt" requirement does not

case.

The

purported

"receipt"

requirement is necessarily separate and distinct from the MSL

requirement, and satisfaction of the latter did not depend on

satisfaction

of

the

former.10

The

only

circumstance

specified in the escrow agreement as requiring RIHT to return

escrow deposits

MSL;

to investors was

Laurel's alleged

the failure to

non-receipt of

$6

attain the

million in

sales

proceeds did not require investor funds to be refunded or the

___

offering to be withdrawn.

theory is that

At most, the logic of plaintiffs'

RIHT released escrowed

funds too early,

_____

and

____________________

10.

The prospectus

individual
Minimum

unit

itself states

sale

Subscription

agreements]
Level

has

that "[c]losings [on

will
been

commence once
satisfied."

the
the
This

language clearly contemplates that the MSL would be satisfied

before the actual
______
And

consummation of the unit

because the proceeds from the

sale agreements.

unit sale agreements that

were counted toward the MSL could not have been "received" by
Laurel until after
_____

the closings on

those units, it

follows

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

-2121

not
___

that RIHT wrongfully

failed to call

for termination of

the offering.11

The question remains whether

RIHT, in its capacity

as

escrow agent, owed any duties

to plaintiffs other than those

spelled out in the agreement.

The Supreme Judicial Court of

Massachusetts has recently indicated that there is an absence

of

discussion

in

Massachusetts law

of

whether

an escrow

agent's duties may extend beyond satisfying the literal terms

of

the

escrow agreement.

Attorneys,
_________

have

421 Mass. 619,

not discussed

See
___

In re Discipline of Two
__________________________

626 (1996)

whether an

beyond fulfilling the terms of

("Massachusetts cases

escrow holder

the escrow.").12

has any

duty

But we find

no support for

is

plaintiffs' broad arguments that

not alleged to

have been in a

required, in effect,

had no

RIHT, which

conflict of interest, was

to actively root out fraud

knowledge and to

of which it

police Laurel's conduct in

the Sea

____________________

11.

This is not

transactions
had been

a case involving the fabrication

of "sham"

designed to create the mere illusion that sales

generated.

The

apparent absence of

some deposits

notwithstanding, there has been no suggestion that any of the

unit sale agreements that were counted toward the MSL in this
case were anything other than bona fide, binding contracts of
purchase and sale.

12.
704,

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

_______ ______
________________________
710

(D.

Mass.

instructions constitute

1985)

("The

the full

escrow

agreement

measure of the

or

obligation

assumed by

the escrow

holder and

owing to

the parties."),

aff'd, 802 F.2d 439 (1st Cir. 1986) (tbl.).

_____

-2222

Crest offering.13

See
___

Two Attorneys, 421

_____________

Mass. at

626-27

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

_______
_________

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

_____
_______
_______

628

(Ark. 1955)

(duty not

to engage

in self-dealing);

Kitchen
_______

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

______________
______________________

1990) (duty to

disclose material facts relevant

overruled on other grounds by Busta v.

_____________________________ _____

to escrow),

Columbus Hosp. Corp.,

____________________

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

N.W.2d

807 (S.D.

1990)

(duty

to

avoid

self-dealing

and

conflicts of interest)).

IV.

Other Common Law Claims

_______________________

A.
__

Breach of Covenant of Good Faith and Fair Dealing

_________________________________________________

The plaintiffs

have not pointed to any record evidence

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

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

that the MSL requirement had

been satisfied, and that all of

____________________

13.

Despite plaintiffs' contrary suggestion,

SEC Rule 10b-9

does not warrant the importation into the escrow agreement of

a generalized

duty to

ensure that the

complied with

the securities

laws.

violation of Section 10(b) of

1934 for any person to
with an offering,

Rule

connection

being offered on

any

of the consideration paid for any

refunded to the

some of the securities are

it a

the Securities Exchange Act of

that securities are

will be

a whole

10b-9 makes

make a representation, in

"basis whereby all or part

such security

offering as

purchaser if

all or

not sold," unless the offering is

structured in a specified way.

17 C.F.R.

240.10b-9.

Here,

however, there is no support for a finding that the Sea Crest

offering

did

basically,

not comply

that RIHT ever

with

Rule

10b-9

or,

even

more

made any "representation" covered

by the Rule.

-2323

the conditions

for releasing

record supports no

of

the funds had

conclusion that RIHT acted

been met.

The

with the sort

dishonest purpose or conscious wrongdoing necessary for a

finding of bad

faith or unfair dealing.

Four, Inc. v.
___________

HBC Assoc., 411

___________

American Employers' Ins. Co.

_____________________________

921, 923 (1993).

disposing

of the

Mass.

See Anthony's Pier

___ ______________

451, 471-72

v. Horton,
______

(1991);

35 Mass. App.

Ct.

The district court did not err in summarily

plaintiffs' claims

for the breach

of the

covenant of good faith and fair dealing.

B.
__

Fraud and Negligent Misrepresentation

_____________________________________

Plaintiffs do

affirmative

offering.

and

there

RIHT did not

is

no

involvement in the preparation

or other offering

did

argue that RIHT

material misrepresentations

the Sea Crest

statement,

not seriously

evidence

to them

made any

concerning

sign the registration

that

RIHT had

any

of the registration statement

materials for the Sea Crest

project.

Nor

RIHT participate in Laurel's marketing or sales efforts.

The only communication between plaintiffs and RIHT appears to

have been through

to investors

agreement.

the escrow agreement, which

and was to have been

was addressed

annexed to each unit sale

Absent

allegations

or misstatements by

was guilty

speak,

of any

of affirmative

misrepresentations

RIHT, the question becomes

actionable omissions.

RIHT's silence could

not have been

-2424

whether RIHT

Absent a

duty to

fraudulent.

See
___

Royal Business Group, Inc. v. Realist, Inc., 933

___________________________
_____________

1064 (1st Cir.

hold

funds

1991).

RIHT's role in

deposited

with it

certain conditions had been met.

escrow agent, had a duty to

until

the offering was

Laurel

421

evidence that

conduct

by

Mass.

at 626-27),

or

any

verified that

disclose known fraud on the part

_____

would show that

Laurel

to

Even assuming that RIHT, as

of Laurel, see, e.g., Maganas, 663 P.2d at 565

____ ____ _______

Attorneys,
_________

F.2d 1056,

plaintiffs

RIHT was aware

other

party

(cited in Two
_____ __ ___

point

to no

of fraudulent

involved

in

the

offering.

It is true

that a

lieu of

that RIHT might have had

number of investors had provided

ten percent

cash deposits

reason to realize

promissory notes in

upon execution

of their

unit sale agreements.

have suspected

But there is no reason why RIHT should

that this was

the result of fraud.

_____

the plaintiffs do not allege

fraudulently made

valid,

or

enforceable

acceptance

of

bona

deposits,

was

not

prospectus that

being

any

that the promissory notes

procured; rather,

instruments.

fide

so

promissory

obviously

Finally,

their decision

nondisclosure

facially

Furthermore,

Laurel's

notes,

to invest; nor

could have

instead

of

with

the

inconsistent

a fraud was

plaintiffs fail to

nondisclosure by RIHT on this

argue that

issue would have affected

do they explain how

been the

were

they were

RIHT should have concluded that

perpetrated.

Indeed,

cause

of their

any such

losses.

-2525

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

Cir. 1996) (elements

of fraud include proof

of reliance and

causation).

C.
__

Aiding and Abetting Fraud

_________________________

The

plaintiffs'

common

law

claim

of

aiding

and

abetting fraud

fares no better.

cause of action for aiding

To establish a

and abetting, plaintiffs must

least demonstrate some measure

knowing provision of

the

principal's (here, Laurel's) alleged fraud.

Nutt, 417
____

nothing

in

elements.

the

record

substantial assistance by

556 (1994).

that

would

Indeed, the evidence is to

testimony in

disavowed

Mass. 549,

at

of "active participation" and

the

v.

common law

See Spinner
___ _______

Plaintiffs

satisfy

trial, Marchand

the existence of

any sort of

point to

these

the contrary.

the Schultz
_______

RIHT to

basic

In his

himself expressly

association between

Laureland RIHT otherthan anarm's lengthbusiness relationship.

V.

RICO Violations
_______________

In order to

prove, inter alia,

__________

prevail on a RICO claim,

that the defendant engaged

of racketeering activity."

argues

a plaintiff must

See 18 U.S.C.
___

in a "pattern

1962.

Here, RIHT

that the district court correctly granted judgment in

its favor on plaintiffs' RICO claims, because plaintiffs have

failed

to establish that RIHT's

the categories

conduct falls within any of

of "racketeering activity"

-2626

described in

the

statute, see 18 U.S.C.

___

failed

to

predicate

U.S.C.

A.
__

adduce

evidence of

acts necessary to

the

"pattern" of

trigger RICO liability,

see 18
___

Establishment of a Predicate Act

________________________________

fact could find

that, on the record, a rational trier

that RIHT engaged

predicates: (i)

aiding and

mail fraud; and

(iii) wire fraud.

that

requisite

1962(b)-(c).

Plaintiffs argue

of

1961(1), and because plaintiffs have

in three racketeering

abetting securities

The

fraud; (ii)

district court found

"aiding and abetting securities fraud" cannot be a RICO

predicate,

in light

Central Bank,
____________

action for

of

511 U.S.

aiding and

Exchange Act),

the

Supreme

at 164 (1994)

abetting under

and that the

Court's

decision

(no private

right of

Section 10(b)

record supports

in

of the

no finding

of

mail or wire fraud by RIHT.

We reserve to another day the issue of

Bank necessarily implies that aiding and

____

fraud

of

whether Central
_______

abetting securities

cannot be a "racketeering activity" within the meaning

1961(1).

securities fraud

Even

can be
___

assuming

aiding

a RICO predicate

record support for such a claim to

respect to the

that

and

abetting

act, we

find the

be lacking, as we do with

plaintiffs' allegations that RIHT

engaged in

mail or wire fraud.

As

with

the

for the

district

aiding and

abetting allegation,

court

record

that the

we agree

contains

not a

-2727

scintilla

finding

of

that

evidence

RIHT

that

would

"consciously

support

the

requisite

shared" in

the

principal

wrongdoer's

(Laurel's)

plaintiffs.

See United States

___ _____________

(1st Cir. 1994)

and abetting).

specific

intent

to

the

v. Loder, 23 F.3d 586, 590-91

_____

(describing the elements of

The lack

defraud

criminal aiding

of evidence of fraudulent intent on

the part of RIHT similarly dooms plaintiffs' allegations that

the bank committed

mail or wire fraud.

There is no basis in

the record from which a rational trier of fact could conclude

that

the

plaintiffs'

mailings

brief in

communications

"in

deceive another, by
_______________

representations,

or

wires

only

by

RIHT

a fleeting

furtherance" of

means of false or

promises,

or

other

(described

in

the

fashion) constituted

scheme "intended to
____________

fraudulent pretenses,

deceptive conduct."
__________________

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

__________________________

_____________________

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

992 (1990).

We

evidence

conclude

to

committed

raise

any of

that

the

triable

the

record

issue

RICO predicate

plaintiffs.

-2828

contains

as

acts

to

insufficient

whether

RIHT

alleged by

the

B.
__

The "Pattern" Requirement

_________________________

The

plaintiffs'

independent reason.

establish

but

"pattern" of

that

RIHT engaged in

the

such activity.

statute

fail for

an additional,

For the plaintiffs to prevail, they must

not only that

activity,"

The RICO

RICO claims

by its

some "racketeering

bank's

conduct

See
___

18 U.S.C.

terms specifies

constituted

1962(b)-(c).

that a

"pattern"

entails

at least

U.S.C.

two predicate

1961(5).

necessary

to

racketeering acts.

However, while

form

sufficient unless they

RICO

two

See 18
___

predicate acts

"pattern,"

they

may

not

are

be

are both "related" and

"amount to or

pose a threat of continued criminal activity."

See H.J. Inc.

___ _________

v. Northwestern Bell Tel. Co., 492 U.S.

___________________________

Fleet Credit Corp.

___________________

1990).

"In

other

v. Sion,
____

words,

893

'continuity plus relationship.'"

WL 842003,

*13 (D.

229, 239-40 (1989);

F.2d 441,

RICO

pattern

444 (1st

Cir.

consists

of

Sousa v. BP Oil, Inc., 1995

_____
____________

Mass. 1995) (quoting

H.J., 492
____

U.S. at

239).

This

court has

remarked upon

the elusiveness

of any

helpful,

talismanic definition

Apparel Art Int'l Inc. v.

_______________________

Cir.

1992).

courts

criminal

But, as

have consistently

behavior, even

of a

RICO

"pattern."

Jacobson, 967 F.2d 720,

________

then-Chief

held that

if it

Judge

involves

722 (1st

Breyer explained,

"single episode"

of

the commission

of

multiple related acts, does not constitute a

-2929

See
___

"pattern."

See
___

id.
___

at

723.

"patterns"

only

"multiple

time.

Instead,

courts

where the

have

tended to

defendant's conduct

criminal episodes" extending

find

RICO

consists of

over long periods of

Id. at 724; see also H.J., 492 U.S. at

___
________ ____

242 ("Congress

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

Here,

RIHT all

the

alleged instances

constituted part of

of

wrongful

conduct by

a single "episode."
______

Like the

multiple predicate acts that were described in Apparel Art as

___________

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

and keeping a

Defense Department contract), see 967

___

F.2d at

723, the alleged racketeering acts attributed to RIHT in this

case, "taken

together, . . .

comprise a

single effort"

to

facilitate a

single financial

endeavor:

the purchase

and

transmitted in

the

renovation of the Sea Crest resort.

If

the

mailings and

course

of its involvement

amount

to a

RICO

wires

in the

"pattern,"

asserted

under the

companion

RICO

integrated

interstate economy,

RIHT

Sea Crest

then

cause

of

action,

it is

offering could

virtually

federal securities

that does not somehow rely on

the telephone."

Id.
___

laws

claim

could spawn

because

the

every

"[i]n

today's

rare transaction

extensive use of the mails

Roeder v. Alpha Indus., Inc.,

______
__________________

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

or

814 F.2d 22,

We conclude

that the instances of RIHT's conduct identified by plaintiffs

as constituting RICO predicate acts did not

form a "pattern"

-3030

of

racketeering

characterized

as

criminal episode."

activity

and

separate

parts

are

of a

more

"appropriately

single

Apparel Art, 967 F.2d at 723.

___________

[allegedly]

VI.

Conclusion
__________

The three

separate judgments entered

by the

court in these consolidated cases are affirmed.

________

district

-3131