Roche v. Royal Bank of Canada, s. 96-1748

Citation109 F.3d 820
Decision Date01 April 1997
Docket Number96-1932,Nos. 96-1748,s. 96-1748
PartiesJohn C. ROCHE and Mark A. Dirico, Plaintiffs, Appellants, v. The ROYAL BANK OF CANADA and Deloitte & Touche, Inc., Defendants, Appellees. The ROYAL BANK OF CANADA and Deloitte & Touche, Inc., Defendants, Cross-Appellants, v. John C. ROCHE and Mark A. Dirico, Plaintiffs, Cross-Appellees.
CourtUnited States Courts of Appeals. United States Court of Appeals (1st Circuit)

Vincent M. Amoroso, Boston, MA, with whom John J. O'Connor and Peabody & Arnold were on brief, for plaintiffs.

Mark A. Berthiaume, Boston, MA, with whom Gary R. Greenberg, Louis J. Scerra, Jr., Jonathan D. Cohen, and Goldstein & Manello, P.C. were on brief, for defendants.

Before SELYA, Circuit Judge, COFFIN, Senior Circuit Judge, and LYNCH, Circuit Judge.

LYNCH, Circuit Judge.

The plaintiffs, Boston-area businessmen John Roche and Mark DiRico, invested in a fish farm in Prince Edward Island, Canada. The venture failed, and they sued the court-appointed receiver which sold them the farm and the bank which had originally financed the project. A jury found against plaintiffs on their claims of common law fraud and misrepresentation for failure to meet their burden of showing proximate cause. The district court, initially finding plaintiffs' allegations actionable under Mass. Gen. Laws ch. 93A ("chapter 93A"), found after trial that defendants had committed unfair and deceptive trade practices, but that their offending acts did not occur "primarily and substantially" in Massachusetts, as required by chapter 93A. Plaintiffs recovered nothing. Defendants' motion for attorneys' fees was also denied. Both parties appeal on the chapter 93A issue, and defendants appeal from the denial of attorneys' fees. We affirm.

I.

We recite the facts as the jury and district court could have found them. Cambridge Plating Co. v. Napco, Inc., 85 F.3d 752, 756 (1st Cir.1996). "Where specific findings are lacking, we view the record in the light most favorable to the ruling, making all reasonably supported inferences." United States v. McCarthy, 77 F.3d 522, 525 (1st Cir.1996).

The story starts in February 1987, when Aquacare A.S., a Norwegian firm, conducted a study for its subsidiary Seasprings Farms Ltd., on the viability of a land-based fish farm in Prince Edward Island, Canada ("PEI"). Aquacare prepared a prospectus (the Aquacare I report), which presented general information about the biological and technical aspects of the proposed operation. The prospectus also contained financial projections and asserted that the production capacity of the contemplated facility would be 131.8 tons of fish in the first year of operation and 360 tons annually thereafter.

The Royal Bank of Canada financed the construction of the farm, which was operated by a firm called Marine Harvesting, Ltd. ("Marine"). Fish were first introduced into the facility in December 1987, but there were construction delays and the plant was not completed until June 1988. Things went badly from the start. The fish did not grow as fast as anticipated and had unexpectedly high mortality rates. By October 1988, the fish had not yet reached market size (4 lbs), as expected.

In October, Cleve Myers, Marine's President, retained Aquatech Systems, A.S., another Norwegian aquaculture firm, to perform an independent study of the farm's problems. Myers wanted to know, among other things, how many tons of fish the farm was capable of producing. Dr. Michael Smith, a biologist from Aquatech, came to the farm on October 30 and spent three days making observations, conducting tests, and speaking with employees. Dr. Smith was not shown the Aquacare I report, but the Aquacare operating manuals were made available to him. The result of Dr. Smith's analysis was a forty-four page report (the Aquatech report), dated November 18, 1988.

The Aquatech report criticized the design of the farm. The report stated that "until experience over a fully operational annual cycle has been gained," the farm could produce, at best, only 200 tons of fish per year. Dr. Smith's report also made several recommendations for improving production. For instance, it recommended that a higher proportion of fresh water be pumped into the tanks, for purposes of both temperature control and salinity control. This suggestion deviated from the specifications in the Aquacare operating manuals. The 200-ton projection was premised on the assumption that the recommended changes would be implemented.

Meanwhile, Osler, Inc., one of Marine's two fifty-percent shareholders, was in receivership, and A.S. Bergens Skillingsbanken, the other fifty-percent shareholder, was refusing to inject additional capital into the venture.

On November 30, Myers turned the keys to the farm over to Lou McGinn, the Loan Officer in charge of the project at the Royal Bank, and requested that the farm be placed in voluntary receivership. Myers stated that without operating capital he was unable to care for the inventory or pay the staff. He also stated that he had "received a consultant's report regarding the production capabilities of the plant which indicate [sic] that the facility is not viable as it presently is financed." McGinn stated that Myers had told him that he received "a consultant's report" which indicated that "the plant was capable of producing only approximately 200 tons of product per year as opposed to the 360 tons of product per year upon which its financing and viability had been initially contemplated and established." In a letter of January 4, 1989, to McGinn, Myers wrote that:

after the [Aquatech] report indicated an expected tonnage, which was not viable, I received confirmation from the directors and major shareholders to advise the bank and request a receiver. Both they and I considered it wrong to continue operations with this information in our possession.

McGinn understood from Myers that the Aquatech report was one of the factors that led Marine to decide not to inject any more money into the project and to opt for receivership. McGinn informed his supervisor of the development, and the supervisor noted in a memo that "apparently a recent study ... places some question on the viability of the project." 1

At the Royal Bank's request, the Supreme Court of PEI appointed Deloitte & Touche 2 as receiver of Marine's assets. Karen Cramm, a partner in Deloitte's Halifax, Nova Scotia office, was in charge of the receivership. Cramm took instructions on the handling of the assets from the Royal Bank, specifically from McGinn, as well as from the PEI court. The Royal Bank was the sole secured creditor of Marine, with a $ 2.8 million note outstanding. The expectation was that none of Marine's other creditors would get anything out of the sale of the assets; there would be a shortfall.

Cramm immediately took possession of Marine's assets and reviewed the company's financial records. Farm employees were terminated as employees of Marine and rehired as employees of Deloitte, as receiver for Marine. Deloitte decided to sell the farm by means of a public tender. Cramm immediately began preparing an information package which could be sent to potential investors. Around this time Myers showed Cramm both the Aquacare I report and the Aquatech report. Cramm read both reports. She included neither of the reports in the information package, though later she would offer the Aquacare I report alone to prospective purchasers.

Deloitte placed advertisements in various newspapers, including the Boston Globe, describing the farm and inviting interested readers to contact Deloitte for further information. The ads stated that the "business is intended to be sold on a going-concern basis."

In early December, after learning that Marine had become insolvent, Aquacare contacted Cramm and told her that it wanted access to the plant to conduct a review of plant operations. Aquacare had heard about the Aquatech report, which criticized Aquacare's design and operational specifications. Cramm agreed to Aquacare's request. Aquacare then issued two unsolicited reports, the Aquacare II report on December 15 and the Aquacare III follow-up report on December 20, attempting to rebut the Aquatech report. Aquacare II reviewed plant operations and praised the design and operational specifications of the plant. Aquacare II reasserted that 360-ton production "can be achieved without problem," provided there was proper stocking of fingerlings (young fish), and recommended a fingerling acquisition plan. Aquacare II also blamed Marine's management for the plant's failures. Aquacare III explicitly refuted the Aquatech report. Aquacare did not bill Deloitte for these reports.

Meanwhile, John Roche, a Massachusetts real estate developer, had been seeking a business opportunity in aquaculture. After reading the Globe ad, he called Cramm from his home in Massachusetts. The next day she sent him the information package. Roche discussed the farm with two of his business associates, Mark DiRico (the chief engineer of a packaging supply business) and George Call, who both expressed an interest. Roche and Call decided to visit the facility in Canada. On January 3 or 4, 1989, they toured the facility with Cramm. During this visit, Roche asked Cramm why the previous investors had failed. She responded that they had run out of money. Roche and Call also met with Cliff Yorston, the Plant Manager, who told them that some of the fish were ready for sale and that all the plant needed was an infusion of new capital.

Cramm offered the visitors a copy of the Aquacare I report. Before receiving it, they were required to sign a disclaimer, which stated, among other things, that they were aware that Deloitte "had not, in any way, attempted to verify the information contained herein." Cramm stated that she offered the Aquacare I report to prospective purchasers because "it was an informative package that included a layout of the plant facility" and "it...

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