Fisher v. Trainor, BIO-VIT

• Decision Date: 12 January 2001
• Docket Number: No. 00-1489,BIO-VIT,HEMO-INNOVATION,LTD,00-1489
• Citation: 242 F.3d 24
• Parties: (1st Cir. 2001) PETER FISHER; BALFOUR HOLDING, INC., Plaintiffs, Appellants, CREDIT FRANCAIS INTERNATIONAL, S.A., Plaintiff, Appellee, v. WILLIAM P. TRAINOR; DIANE M. TRAINOR;;; LAUREL MOUNTAIN TRUST; WILLIAM P. TRAINOR, AS TRUSTEE OF LAUREL MOUNTAIN TRUST; SHEA & GOULD, A LAW FIRM IN DISSOLUTION, Defendants, BIOPURE CORPORATION; BIOPURE ASSOCIATES; BIOPURE ASSOCIATES LIMITED PARTNERSHIP; CARL W. RAUSCH, AS GENERAL PARTNER OF BIOPURE ASSOCIATES LIMITED PARTNERSHIP, Defendants, Appellees. Heard
• Court: U.S. Court of Appeals — First Circuit

Page 24

242 F.3d 24 (1st Cir. 2001)

PETER FISHER; BALFOUR HOLDING, INC., Plaintiffs, Appellants, CREDIT FRANCAIS INTERNATIONAL, S.A., Plaintiff, Appellee, v. WILLIAM P. TRAINOR; DIANE M. TRAINOR; BIO-VITA, LTD.; HEMO-INNOVATIONS, LTD.; LAUREL MOUNTAIN TRUST; WILLIAM P. TRAINOR, AS TRUSTEE OF LAUREL MOUNTAIN TRUST; SHEA & GOULD, A LAW FIRM IN DISSOLUTION, Defendants, BIOPURE CORPORATION; BIOPURE ASSOCIATES; BIOPURE ASSOCIATES LIMITED PARTNERSHIP; CARL W. RAUSCH, AS GENERAL PARTNER OF BIOPURE ASSOCIATES LIMITED PARTNERSHIP, Defendants, Appellees.

No. 00-1489

United States Court of Appeals For the First Circuit

Heard January 12, 2001

Decided March 6, 2001

APPEAL FROM THE UNITED STATES DISTRICT COURT OR THE DISTRICT OF MASSACHUSETTS

[Hon. James L. Watson, Senior Judge] Marc Z. Edell, with whom Diane L. Mulligan, Dina L. Sforza, and Edell & Associates were on brief, for appellant.

Marc S. Palay, with whom Eric W. Bloom, Winston & Strawn, John D. Donovan, Jr., and Ropes & Gray were on brief, for appellee Credit Francais International.

S. Elaine McChesney, with whom Robert A. Buhlman and Bingham Dana LLP were on brief, for appellee Biopure.

Before Boudin, Stahl, and Lynch, Circuit Judges.

LYNCH, Circuit Judge.

This consolidated case, in which multiple frauds are alleged against a partner to a biotechnology venture, emerges from over ten years of complex, multi-party litigation. The case appears before us on appeal for the second time; we originally considered it nearly five years ago. SeeCredit Francais International v. Bio-Vita, Ltd., 78 F.3d 698 (1st Cir. 1996) ("CFI v. Bio-Vita"). The original appeal arose out of two separate summary judgment orders issued by the district court, one in July 1994 and the other in December of the same year. The July judgment awarded Credit Francais International a constructive trust over certain contractual rights William Trainor had acquired from Biopure using funds he had fraudulently obtained from CFI. The December judgment effectively denied Peter Fisher, allegedly Trainor's innocent partner, any similar stake in those contractual rights; the judgment also dismissed certain direct claims Fisher had brought against Biopure.

In CFI v. Bio-Vita, we found we lacked jurisdiction to review the December judgment because at the time it had been prematurely certified as final. We remanded the case, and the district court undertook further proceedings in accordance with our instructions. Subsequently, the district court again ruled against Fisher, recertifying the December judgment as final. We now affirm the judgment.¹

I.

The facts of the case are laid out in detail in CFI v. Bio-Vita. See 78 F.3d at 701-703. We briefly review, and occasionally supplement, those facts.

In November 1989, Trainor and Fisher entered into a joint venture to invest in and manage the testing of a human blood substitute being developed by Biopure; by oral agreement, they were to split the proceeds from the venture fifty-fifty. Trainor was supposed to negotiate a contract with Biopure on behalf of the joint venture, using Balfour -- a company affiliated with Fisher -- as the vehicle for the transaction. What appears to be a draft agreement, labeled a "Term Sheet," was drawn up accordingly, with Balfour as the named party to the contract. The agreement called for giving Balfour an equity share in Biopure and licensing rights to Biopure products. However, by the time the agreement was finalized in a set of three instruments in late January 1990, Trainor secretly substituted his own company, Bio-Vita, as the named party to the contract, effectively shouldering Fisher out of the deal.²

Pursuant to these finalized instruments (referred to collectively as the "Biopure contract"), Trainor transferred $1.25 million to Biopure as partial consideration for the equity share granted under the contract. In addition, he transferred $1.8 million to a personal trust account, out of which he paid various expenses incurred in performance of the contract. It was later discovered that Trainor had obtained all of these funds by way of a fraud on CFI, a French bank, in the late 1980s -- before the formation of the Biopure venture.

Meanwhile, Fisher, purportedly unaware of any of his co-venturer's mischief and still believing himself to be a party to the Biopure contract, traveled to Guatemala in early 1990 to oversee clinical testing of Biopure's product. Although the extent of Fisher's labors in Guatemala are much disputed, Fisher claims to have spent substantial time and effort there acquiring governmental approval for the clinical trials and overseeing their administration.

In June 1990, Biopure was alerted to various facts about Trainor and Fisher's backgrounds. Among other things, Biopure learned that Trainor and Fisher both had considerable histories of being sued for fraud and financial misdealing; further, Trainor had several convictions for fraud and other white-collar crimes. Believing that Trainor and Fisher had misrepresented themselves by not earlier revealing these facts, and worrying about the integrity of their dealings with Biopure, Biopure rescinded the Biopure contract in August 1990.

From these events, a tangle of claims emerged, sprawling across two (eventually consolidated) lawsuits. For the purposes of this appeal, only the following need be mentioned:

(1) Trainor sued Biopure for breach of the Biopure contract.

(2) Fisher sued Trainor under various theories for defrauding him of his share of the Biopure contract rights. Among other forms of relief, Fisher sought a constructive trust over the rights. Fisher also sued Biopure for breach of contract and related counts.

(3) Biopure sued both Trainor and Fisher for fraud, racketeering, and related counts; among other forms of relief, it sought a declaration that the Biopure contract was void for fraud and that its recission was effective.

(4) CFI brought claims against Trainor, Fisher, and Biopure for a constructive trust over the Biopure contract rights, on the ground that those rights had been acquired using funds fraudulently obtained from CFI.

Much of the early proceedings in the case concerned Fisher's claim that Trainor had violated their oral joint venture agreement by substituting Bio-Vita as the named party to the Biopure contract. That claim was tried before a jury in 1992. The jury issued a special verdict, but Trainor and Fisher were unable to agree on its meaning, and a mistrial was declared.

The later proceedings in the case give rise to the current appeal. In July 1994, the district court granted summary judgment to CFI against Trainor, awarding CFI a constructive trust over the Biopure contract rights (the choses in action in Trainor's suit against Biopure) and allowing CFI to step into Trainor's shoes to litigate those rights. The court noted that its decision did not address Fisher's claims and their possible effect on CFI's constructive trust.

In December 1994, the district court granted summary judgment to both Biopure and CFI against Fisher. As to Biopure's motion for summary judgment, the court found that Fisher could only assert claims against Biopure in his capacity as a partner to the joint venture. But because any rights that the joint venture might have had against Biopure were transferred to CFI by way of the July judgment, Fisher was now precluded from suing on these rights directly. As to CFI's motion for summary judgment, the court held that any claim Fisher had to a constructive trust over the Biopure contract rights was trumped by CFI's claim to such trust. The court reasoned that "[a]s between victims of a fraud who are unrelated to the person responsible for the fraud and a partner of the defrauder, even one who may have himself been victimized, it is clearly fair to impute the fraud to the latter."

In CFI v. Bio-Vita, we heard appeals from the July and December summary judgment orders. Trainor originally appealed the July judgment, but voluntarily dismissed his appeal early in the appellate process. Fisher also appealed the July judgment, but belatedly and in a manner that prevented proper briefing. We declined to relieve Fisher of his errors and thus let the July judgment stand. CFI v. Bio-Vita, 78 F.3d at 708.

Our disposition of the appeal of the December judgment was more complex. We found that we lacked jurisdiction to review the judgment because it had been prematurely certified as final: the claims it concerned so overlapped with claims still pending below as to make final certification inappropriate under Fed. R. Civ. P. 54(b). Id. We found such overlap was traceable, inter alia, to a claim Fisher had not presented until appellate oral argument: Fisher claimed that his labors in Guatemala constituted a contribution to the value of the Biopure contract rights untainted by Trainor's fraud on CFI. Such "sweat equity," we noted, possibly entitled him to a proportionate share of CFI's constructive trust over those rights, if he could overcome his waiver of the claim. However, we declined to determine whether Fisher should be relieved from his waiver. Instead, we instructed the district court to make such determination on remand after further development of the factual record. That determination, we advised, would turn on whether (1) Fisher's "sweat equity" argument was so compelling as virtually to ensure his success, and (2) whether failure to address it would result in a gross miscarriage of justice -- in particular by leaving CFI with a gross windfall, insofar as the value of the Biopure contract rights which it held greatly exceeded its losses resulting from Trainor's fraud. Id. at 709. On remand, the district court developed the factual record as we instructed, reopening discovery to allow Fisher to adduce evidence of his "sweat equity" and the value of the Biopure contract rights.

Meanwhile, in December 1996, CFI settled its claims against Biopure, effectively liquidating its...