Brandt v. Wand Partners , 242 F.3d 6 ( 2001 )

United States Court of Appeals
For the First Circuit
No. 00-1065
WILLIAM A. BRANDT, JR.,
Plaintiff, Appellant,
v.
WAND PARTNERS, ET AL.,
Defendants, Appellees.
____________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Nathaniel M. Gorton, U.S. District Judge]
Before
Boudin, Circuit Judge,
Cyr, Senior Circuit Judge,
and Zobel,* District Judge.
J. Joseph Bainton with whom John G. McCarthy, Ethan D.
Siegel, Andrew H. Beatty, Bainton McCarthy & Siegel, LLC,
Timothy P. Wickstrom, Tashjian, Simsarian & Wickstrom, Daniel C.
Cohn, David Madoff and Cohn & Kelakos LLP were on brief for
plaintiff.
John O. Mirick with whom Mirick, O'Connell, De Mallie &
Lougee, LLP, David L. Evans, Hanify & King, P.C., Mike McKool,
Jr., Sam F. Baxter, Jeffrey A. Carter, Rosemary T. Snider, Randy
J. Carter and McKool Smith, P.C. were on brief for appellees
Hicks, Muse and Company (TX) Incorporated, Hicks, Muse Equity
*Of the District of Massachusetts, sitting by designation.
Fund, L.P., HMC Partners, L.P., HMC Partners, Healthco Holding
Corporation, Thomas Hicks, John Muse and Jack Furst.
John J. Curtin, Jr. with whom Mark W. Batten, Bingham, Dana
LLP, Matthew Gluck, Gregg L. Weiner, and Fried, Frank, Harris,
Shriver & Jacobson, P.C. were on brief for appellees Thomas L.
Kempner and Vincent A. Mai.
Thomas G. Rafferty with whom David R. Marriott, Aviva O.
Wertheimer, Cravath, Swaine & Moore, Arnold P. Messing, E. Kenly
Ames and Choate, Hall & Stewart were on brief for appellee
Lazard Frères & Company LLC.
Alan Kolod with whom Mark N. Parry, Moses & Singer LLP,
Vincent M. Amoroso and Posternak, Blankstein & Lund were on
brief for appellees Kenneth W. Aitchison, Robert E. Mulcahy III,
Arthur M. Goldberg and Gemini Partners, L.P.
E. Randolph Tucker with whom John A.D. Gilmore, John A.E.
Pottow and Hill & Barlow, P.C. were on brief for The Airlie
Group, L.P., Dort Cameron, III, EDB, L.P., TMT-FW, Inc., Thomas
M. Taylor, Lee M. Bass and Perry R. Bass.
Thomas C. Frongillo, Brian E. Pastuszenski, Amanda J. Metts
and Testa, Hurwitz & Thibeault, LLP on brief for appellees Wand
Partners and Mercury Asset Management.
Leonard H. Freiman, James F. Wallack and Goulston & Storrs,
P.C. on brief for appellees Helen Cyker and J. Robert Casey,
Trustee.
Nancy L. Lazar, Dennis E. Glazer, Edward P. Boyle and Davis
Polk and Wardwell on brief for appellee J.P. Morgan & Company,
Inc.
Paula M. Bagger, Marjorie Sommer Cooke, Christopher T.
Vrountas and Cooke, Clancy & Gruenthal on brief for appellee
Marvin Meyer Cyker.
Edwin G. Schallert, Eileen E. Sullivan and Debevoise &
Plimpton on brief for appellees Chancellor Capital Management,
Inc.
and Chancellor Trust Company.
Kathleen S. Donius, Stephen T. Jacobs and Reinhart, Boerner,
Van Deuren, Norris & Rieselbach, s.c. on brief for appellee
Valuation Research Corporation.
March 2, 2001
BOUDIN, Circuit Judge. This case arises out of the
failure and chapter 7 bankruptcy of Healthco International, Inc.
("Healthco"), a major global distributor of dental products and
services. Following this debacle, the chapter 7 trustee brought
the present case on behalf of the estate against numerous
parties alleged to have been responsible for, or beneficiaries
of, the leveraged buyout that precipitated the collapse of
Healthco. We begin with a short history of the transactions and
proceedings, and then address the claims on appeal made by the
bankruptcy trustee, William Brandt.1
I. Factual Background
In the late spring of 1990, Gemini Partners, L.P., a
Delaware limited partnership that owned 9.96% of Healthco's
common shares, formed the Committee for Maximizing Shareholder
Value of Healthco International ("the Committee") and began a
1
Aspects of Healthco's bankruptcy are addressed in Hicks,
Muse & Co. v. Brandt (In re Healthco Int'l, Inc.), 136 F.3d 45
(1st Cir. 1998); Brandt v. Repco Printers & Lithographics, Inc.
(In re Healthco Int'l, Inc.), 132 F.3d 104 (1st Cir. 1997);
Brandt v. Hicks, Muse & Co., 213 B.R. 784 (D. Mass. 1997);
Brandt v. Hicks, Muse & Co. (In re Healthco Int'l, Inc.), 208
B.R. 288 (Bankr. D. Mass. 1997); Brandt v. Hicks, Muse & Co. (In
re Healthco Int'l, Inc.), 203 B.R. 515 (Bankr. D. Mass. 1996);
Brandt v. Hicks, Muse & Co. (In re Healthco Int'l, Inc.), 201
B.R. 19 (Bankr. D. Mass. 1996); Brandt v. Hicks, Muse & Co. (In
re Healthco Int'l, Inc.), 195 B.R. 971 (Bankr. D. Mass. 1996);
In re Healthco Int'l, Inc., 174 B.R. 174 (Bankr. D. Mass. 1994).
Two opinions in this group, Brandt, 213 B.R. 784, and Brandt,
208 B.R. 288, provide more detailed accounts of the leveraged
buyout than our own summary.
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proxy contest to remove Healthco's incumbent directors. In
response, Healthco engaged Lazard Frères & Co. LLC as its
financial advisor and sought to arrange the company's sale to
another buyer.
On September 4, 1990, Healthco entered into a merger
agreement with affiliates of Hicks, Muse & Co. ("Hicks, Muse"),
a Dallas-based investment firm. Under the agreement, a company
formed by Hicks, Muse would merge with Healthco after acquiring
its stock at a price of $19.25 per share. After reaching this
agreement, in mid-September Healthco negotiated a separate
settlement agreement with Gemini and the Committee, under which
three Committee nominees became members of Healthco's seven-
member board. The settlement agreement provided that, if the
merger agreement was terminated or sufficient progress toward a
sale of the company was not subsequently made, the Committee
could increase its share of the board from three out of seven to
five out of nine. As a further spur to a merger or sale, Gemini
promised each Committee director $24,000, less director
compensation, if Gemini sold its shares at a profit.
In February 1991, Hicks, Muse's initial plan for a
leveraged buyout2 ("LBO") of Healthco fell apart after Healthco's
2
A leveraged buyout is a transaction to acquire a
corporation
"in which a substantial portion of the purchase price paid for
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annual physical inventory indicated that the company's unaudited
1990 earnings were several million dollars lower than expected.
Healthco's auditors, Coopers & Lybrand L.L.P., later certified
financial statements that revealed a 1990 net loss of just over
$5 million and 1990 earnings of less than $22 million. Given
such figures, Hicks, Muse determined the $19.25 share price was
too high, and the parties set to work drawing up a new plan.
On March 26, 1991, Healthco's board voted 5-2 to
approve a new merger plan involving Hicks, Muse affiliates.
Marvin Cyker, Healthco's chief executive officer and board
chairman, who held stock options but no outstanding shares in
Healthco, was one of the two board members who voted against the
transaction. The proposal was for a tender offer for Healthco
stock at $15 per share to be made under Hicks, Muse's auspices,
with financing by other parties, after which Healthco would
merge with a new entity controlled by the new investors. Lazard
Frères advised that the transaction was fair to Healthco
stockholders.
the stock of a target corporation is borrowed and where the loan
is secured by the target corporation's assets." Mellon Bank,
N.A. v. Metro Communications, Inc., 945 F.2d 635, 645 (3d Cir.
1991), cert. denied, 503 U.S. 937 (1992); 3 Norton Bankruptcy
Law and Practice 2d § 58A:1, at 58A-2 to 58A-3 (William L.
Norton, Jr., ed., 1997). See generally Day, Walls & Dolak,
Riding the Rapids: Financing the Leveraged Transaction Without
Getting Wet, 41 Syracuse L. Rev. 661 (1990).
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On April 2, a tender offer for Healthco stock was made
by HMD Acquisition Corp., a wholly-owned subsidiary of Healthco
Holding Co.; Healthco Holding was itself a company set up by
Hicks, Muse to be the recipient of $55 million of the Hicks,
Muse investors' funds. Additional funds for the merger were to
be supplied by a bank group that would provide a $50 million
tender facility (i.e., an available loan) in exchange for
perfected first priority liens on HMD Acquisition's shares in
Healthco. Another group of investment entities were to provide
$45 million in cash, in exchange for subordinated debt.
The tender offer was successful. HMD Acquisition
acquired more than 90% of Healthco's stock in the tender offer.
Among the stockholders who tendered shares or options in the
merger were Marvin Cyker, who received over $1 million for his
stock options, and J.P. Morgan & Co., an investment firm that
had held 17.3% of Healthco's shares (13.0% on a fully diluted
basis, i.e., after the exercise of options) as a record
shareholder for its clients.
The buyout of Healthco was completed on May 22, 1991,
through a short-form, cash-out merger, Del. Code Ann. tit. 8, §
253 (1999), in which HMD Acquisition Corp. was merged into
Healthco. Healthco's remaining original stockholders received
$15 per share in exchange for their holdings. The Hicks, Muse
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investors, by contrast, were now largely dependent on Healthco's
fate. As a result of the merger, Healthco, the surviving
company, inherited all of HMD Acquisition's debts--namely, the
multimillion-dollar debts owed to non-equity investors (e.g.,
the banks) who helped to finance the Healthco buyout.
After the merger, Healthco's financial situation
steadily deteriorated. (It is unclear to what extent this was
due to pre-existing problems and to what extent the situation
was aggravated by new debt.) In the spring of 1992, Healthco
was placed on credit hold by a large European supplier, and by
June 1992 more than forty of Healthco's suppliers were refusing
to ship it goods until they were paid for past receivables.
After defaulting on several loan covenants, Healthco faced an
increasingly hostile relationship with the bank group that had
financed the tender facility for the buyout.
On June 9, 1993, Healthco filed a petition for chapter
11 bankruptcy in the federal bankruptcy court in Massachusetts,
11 U.S.C. § 301 (1994). That September, after declining to
approve a new borrowing arrangement, the bankruptcy court
granted Healthco's motion for conversion to chapter 7
bankruptcy. Id. § 1112(a). The buyout of Healthco, which had
possessed assets of greater than $300 million at the time of the
merger, had ended in a liquidation proceeding that yielded less
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than $60 million, far less than what was needed to pay off
Healthco's creditors.
On June 8, 1995, Brandt, as Healthco's chapter 7
trustee, began the present adversary proceeding in the
bankruptcy court, implicating almost all of those involved in
the merger transaction and ultimately claiming around $300
million in damages. Brandt's 22-count complaint made 12 claims
for fraudulent transfers (counts I-XII).3 Brandt also alleged
four counts of breach of fiduciary duty, or of aiding and
abetting the same (counts XIII-XVI).4 Finally, Brandt charged
Coopers & Lybrand with accounting malpractice; accused Lazard
and Valuation Research Corporation, a financial advisor of
Hicks, Muse, of negligence; claimed that all the tendering
shareholders were unjustly enriched and benefitted from a
commercially unreasonable distribution; and alleged that the
3
Those accused of benefitting from fraudulent transfers
included (1) Hicks, Muse, the primary orchestrator of the
leveraged buyout; (2) the bank group and subordinated
debtholders who helped finance the buyout; (3) various other
Healthco stockholders, whose tendering of shares allowed the
buyout to proceed; (4) and various professionals who were paid
for their roles in bringing about the buyout.
4
The primary targets of these counts were the directors of
Healthco and HMD Acquisition, as well as Healthco's controlling
shareholders. Their alleged aiders and abettors included Hicks,
Muse, Healthco Holding Co., the bank group, Healthco directors
who voted for the buyout, Valuation Research which had endorsed
the feasibility of the original $19 buyout plan, and Lazard
which had endorsed the fairness of the $15 plan.
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bank group was liable because of the commercially unreasonable
way in which it liquidated its collateral (counts XVII-XXII).
Proceedings in the bankruptcy court were extensive
during the balance of 1995 and throughout 1996. In addition to
discovery (and discovery disputes), there were several amended
complaints by Brandt, dismissal or summary judgment grants in
favor of various defendants on specific claims, and efforts
(generally unsuccessful) by Brandt to get interlocutory review
on various rulings in the district court. Although it became
clear in 1996 that a jury trial would likely be required in the
district court on certain claims, the bankruptcy judge continued
to oversee the matter.
In early 1997, the district court began to move the
remaining claims toward trial. Brandt then reached a settlement
with the bank group defendants and later filed a fourth amended
complaint streamlining various of the claims that remained.
Shortly before trial, Brandt settled his claim with Coopers &
Lybrand. Except for claims against Lazard, (where jury trial
had been waived) the remaining claims were tried to a jury in a
27-day trial from April 23 until June 6, 1997. Brandt lost on
every claim tried to the jury, and the district court found in
favor of Lazard.
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Brandt now appeals on numerous issues. Importantly,
these include the dismissal by the bankruptcy court of key
fraudulent transfer claims, its grant of summary judgment for
various defendants as to the unjust enrichment claims against
them, the district court's disposition of certain fiduciary duty
claims, and miscellaneous claims relating to discovery and the
conduct of the trial. The details, and certain concerns about
our jurisdiction, are discussed in connection with each set of
claims.
II. Fraudulent Transfer Dismissals
We start with Brandt's effort to revive the fraudulent
transfer claims that the bankruptcy judge dismissed. In
essence, Brandt's theory of fraudulent transfer is that because
Healthco's assumption of HMD Acquisition's liabilities meant
that Healthco's assets became collateral for the debt that
financed the buyout, both the tendering shareholders and the
financiers obtained proceeds from a "fraudulent" transaction
that deprived Healthco's pre-existing unsecured creditors of
most of the value of the company's assets.
The bankruptcy court refused to see the transaction as
a stripping of Healthco assets. Rejecting Brandt's call to
"collapse" the multi-step buyout into a transfer of Healthco's
assets to shareholders and buyout financiers, the bankruptcy
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court repeatedly held that "funds transferred by [HMD]
Acquisition prior to the effectiveness of the merger [were] not
transfers by [Healthco] and hence are immune from fraudulent
transfer attack." Brandt, 201 B.R. at 21. It is this refusal
to "collapse" the leveraged buyout, and hence treat the payments
in question as ones made in substance (although not in form) out
of Healthco's assets, which is the focus of Brandt's challenge
on appeal.
Whether the transaction should have been "collapsed"
appears to be a difficult issue of state law (the parties do not
agree on which state or states supply the law) on which there is
fairly limited precedent.5 Of course, there are similar problems
5See, e.g., Kupetz v. Wolf, 845 F.2d 842, 847-48, 850 (9th
Cir. 1988) (respecting "the formal structure of [the] LBO," and
declining to apply a theory of constructive fraud); United
States v. Tabor Court Realty Corp., 803 F.2d 1288, 1297 (3d Cir.
1986) (applying Pennsylvania's fraudulent conveyance statute to
leveraged buyouts), cert. denied, 483 U.S. 1005 (1987); MFS/Sun
Life Trust-High Yield Series v. Van Dusen Airport Servs. Co.,
910 F. Supp. 913, 933-34 (S.D.N.Y. 1995) (finding collapsing an
LBO appropriate where "all parties to each subsidiary transfer
were aware of the overall leveraged buyout"); Wieboldt Stores,
Inc. v. Schottenstein, 94 B.R. 488, 501-03 (N.D. Ill. 1988)
(collapsing an LBO with respect to "the controlling
shareholders, the LBO lenders, and the insider shareholders,"
but not with respect to shareholders who were only aware of the
tender offer made to them); Murphy v. Meritor Sav. Bank (In re
O'Day Corp.), 126 B.R. 370, 394 (Bankr. D. Mass. 1991)
(collapsing an LBO where "all parties . . . were aware of the
structure of the transaction and participated in implementing
it"); In re Revco D.S., Inc., 118 B.R. 468, 517-18 (Bankr. N.D.
Ohio 1990) (noting the competition between more traditional
"anti-collapse" and more modern "pro-collapse" perspectives).
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in other areas (e.g., tax law, see True v. United States, 190
F.3d 1165, 1176-77 (10th Cir. 1999)), and there are countless
difficult arguments in policy presented by the request to
collapse the buyout. Indeed, the bankruptcy court itself, in
dealing with directors' obligations of loyalty, recognized that
Healthco's assets were security for the transaction's financing
and described as "myopic" the defendants' argument that the
buyout transaction should be analyzed only in terms of its
separate parts. Brandt, 208 B.R. at 302.
We conclude, however, that the issue is not properly
before us because our authority is limited to review of
judgments by the district court and Brandt never secured a
district court judgment resolving any of the fraudulent transfer
claims. Abbreviating the history, the story begins with the
bankruptcy court's orders of October 27, 1995, granting motions
to dismiss on the basis of a bench ruling from the prior day.
The dismissals were of fraudulent transfer claims against
various defendants who were for the most part tendering
shareholders in the multi-step buyout: J.P. Morgan & Co., the
Airlie Group defendants (a limited partnership and several
individuals who owned approximately 10% of Healthco's stock), J.
Robert Casey, and Helen and Marvin Cyker.
-13-
On November 6, 1995, Brandt sought leave to appeal
these dismissals as interlocutory orders, 28 U.S.C. § 158(a);
Fed. R. Bankr. P. 8003. On June 27, 1996, the district court
denied this motion. Brandt then asked the bankruptcy court to
certify the dismissals for an appeal under Federal Rule of
Bankruptcy Procedure 7054(a), the bankruptcy counterpart of
Federal Rule of Civil Procedure 54(b), but the bankruptcy court
denied this motion. Later the bankruptcy court issued orders
dismissing further claims of fraudulent transfers to Healthco
shareholders, subordinated preferred shareholders, and others.
Again Brandt did not secure review by the district court.
At this stage, the bankruptcy court's orders were
dismissals of claims on the merits but were not final (and
therefore not immediately appealable as of right). 28 U.S.C. §
158(a). The bankruptcy court has authority to deny on the
merits claims that are within its core authority, and one
proceeding so listed is the voiding of fraudulent conveyances.
Id. § 157(b)(2)(H). Even if for some reason the claims at issue
are not within this rubric (the parties have not briefed the
issue and we do not decide it), Brandt did not contest the
bankruptcy court's power to dismiss on the merits, so there was
also jurisdiction by consent. See In re G.S.F. Corp., 938 F.2d
1467, 1476-77 (1st Cir. 1991). See generally 28 U.S.C. §
-14-
157(c)(2); Commodity Futures Trading Comm'n v. Schor, 478 U.S.
833, 848-50 (1986).
The finality issue is complicated. Although a "final
judgment" rule of some kind applies to appeals from the
bankruptcy court to the district court (with exceptions for
certification and leave of the court), the concept of finality
is more flexibly applied than with regard to district court
judgments, In re American Colonial Broad. Corp., 758 F.2d 794,
801 (1st Cir. 1985); this approach recognizes that complex
bankruptcies are often an umbrella for a multitude of claims
between different parties and, thus, that the strict requirement
of final judgment used in district court appeals--the resolution
of all claims as between all parties--could delay for years
district court review of matters that are essentially final as
between the parties concerned in a bankruptcy.
The difficulty is that despite some agreement as to
which actions are final or not final, no uniform and well-
developed set of rules exists and on many points there is a good
deal of uncertainty. See 1 Collier on Bankruptcy § 5.07
(Lawrence P. King ed., 15th ed. 2000); cf. In re Public Serv.
Co. of N.H., 898 F.2d 1, 2 (1st Cir. 1990) (noting "strong
analogies" between adversary proceedings and ordinary district
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court cases, and suggesting that a bankruptcy court's partial
summary judgment order was not final).
In this case, it appears that most defendants who had
fraudulent transfer claims dismissed by the bankruptcy judge
still had other limited claims ( e.g., unjust enrichment) pending
against them (subordinated debtholders who helped finance the
buyout possibly being the only significant exceptions).
Furthermore, all the dismissed claims were substantially related
to those that remained before the lower courts. Indeed, it is
seemingly for these reasons that the bankruptcy court and
district court resisted interlocutory review or certification.
Brandt himself thought the dismissals were interlocutory at the
time the orders were entered, and no one has disputed that view.
We thus proceed on that premise, without any further effort to
develop clear-cut rules in this difficult area.
Eventually, the district court withdrew its reference
to the bankruptcy court as to various components of the case so
that it could dispose of a number of claims that required a jury
trial (together with a parallel jury-waived claim against
Lazard). Possibly at this time Brandt could have taken the
position that the transfer of other claims as to the defendants
in question rendered final the earlier orders dismissing the
fraudulent transfer claims. In that event, Brandt would have
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had ten days following the termination of the reference to file
an appeal in the district court challenging the dismissals. See
Fed. R. Bankr. P. 8002(a). However, Brandt did not follow
this course, nor did he alert the district court, as the court
proceeded to try the remaining claims, that the bankruptcy
court's dismissal of the fraudulent transfer claims remained
open to challenge in the district court. If the district court
had been so alerted, it is unlikely that it would have ignored
the matter; and regardless of whether the district court upheld
the bankruptcy judge or reversed him and tried these claims
along with the others, there would have been a resolution of the
fraudulent transfer claims by the district court that could now
be brought before us.
Following the trial, Brandt filed new trial motions
directed to the claims that had been resolved by the district
court but again made no mention of the fraudulent transfer
claims. Instead, after the motions were denied, Brandt filed
his appeal from the district court's judgment and then proceeded
in this court to brief the dismissal of the fraudulent transfer
claims as if they were encompassed by the district court's
judgment. But, of course, the district court's judgment only
resolved the claims that had been presented to the district
court and decided by the judge or the jury.
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After various defendants objected to consideration of
the fraudulent transfer claims on appeal, Brandt filed a reply
brief urging that "the entry of final judgment in the District
Court calls up for appellate review by this Court all
interlocutory orders of which the Trustee is aggrieved, whether
entered by the District Court or by the Bankruptcy Court, and
this Court therefore has jurisdiction over all aspects of this
appeal." Brandt also points to his earlier efforts to appeal
the dismissals as interlocutory orders and pokes fun at the
notion that there should now be an appeal of those dismissals to
the district court with appeals proceeding simultaneously before
the district court (on the fraudulent transfer claims) and
before this court (on the claims already resolved in the
district court). None of these arguments works.
True, where the district court has made interlocutory
decisions before entering a final judgment, an appeal from the
final judgment brings up the interlocutory decisions for review
by this court. John's Insulation, Inc. v. L. Addison & Assocs.,
Inc., 156 F.3d 101, 105 (1st Cir. 1998). The difficulty is that
this logic works only with respect to the interlocutory orders
of the district court; the bankruptcy court, although a unit of
the district court, is a distinct entity whose orders are
appealable to the district court under a set of detailed
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restrictions and time limits. If proper and timely review is
not sought in the district court, the matter never reaches that
court and a fortiori does not reach this court.
One could argue that the dismissal orders in question
became final only when the district court dismissed the
remaining claims against the same defendants following trial.
If so, Brandt might then have appealed the dismissal orders to
the district court, obtained a ruling and (assuming affirmance)
sought to consolidate an appeal from this judgment with its
previous appeal from the judgment on issues actually tried to
the district court. However, Brandt did not follow this course
either and cannot do so now because the time limit on an appeal
to the district court expired before Brandt filed his appeal in
this court.6 The failure of Brandt's case on this ground also
spares us from considering various so-called "waiver" arguments
that some of the defendants pressed based on Brandt's failure to
act earlier to raise the dismissed claims in the district court.
From an equitable standpoint, one may feel some
sympathy for Brandt, who was faced with poorly developed rules
6Fed. R. Bankr. 8002(a). This discrepancy in timing also
forecloses any option we otherwise might have had to treat the
appeal to us as an appeal of the bankruptcy court orders filed
in the wrong court and to transfer the appeal to the district
court based on the transfer statute, 28 U.S.C. § 1631. Notably,
Brandt has neither cited the transfer statute nor made any such
transfer request.
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on finality and who made early efforts to seek district court
review of the dismissals; it is much less easy to excuse the
apparent failure of Brandt to call vividly to the district
court's attention the fact that, while that court was proceeding
to try a set of claims properly before it, Brandt still desired
to press other claims that the bankruptcy court had dismissed
and which would almost certainly have been tried at the same
time if the district court had overturned the bankruptcy court's
dismissals.
However, our inability to address the merits does not
rest on an equitable objection. Rather, it rests on the simple
fact that our authority is to review judgments of the district
court, and Brandt never secured a district court judgment on the
fraudulent transfer claims nor is it apparent how he could do so
now. Counsel for the trustee in a complicated bankruptcy case
has to make its own decisions even where the law is unclear, and
the course here followed did not preserve Brandt's claims.
III. The Unjust Enrichment Claims
The bankruptcy court granted summary judgment rejecting
claims of unjust enrichment leveled against a number of
defendants. Most of the grants were never reviewed by the
district court and are thus not before us, but Brandt did seek
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review by the district court of the summary judgments on these
counts in favor of J.P. Morgan and Marvin Cyker.
The district court granted Brandt leave to appeal these
two summary judgments as interlocutory orders but nevertheless
affirmed the bankruptcy court's judgments on the ground that
neither J.P. Morgan nor Cyker had been shown to have committed
the "minimal wrongdoing" that the district court deemed required
for an unjust enrichment claim under Massachusetts law. The
district court's rationale differed from those of the bankruptcy
court: the bankruptcy court had ruled in favor of Cyker because
he opposed the transaction, and in favor of J.P. Morgan because,
as a mere recordholder, it received no direct benefit from the
transaction.
J.P. Morgan argues that Brandt is seeking to appeal
directly to this court from the bankruptcy court rulings, which
Brandt may not do. Brandt's arguments in his opening brief
suggest that he has the same view. But given the district
court's affirmance and the lack of any limiting language in the
notice of appeal to this court, we are free to treat Brandt as
appealing from the district judge's affirmance of these orders.
So viewed, these district court orders merged in the final
judgment entered by the district court and are properly before
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us now. Cf. In re Parque Forestal, Inc., 949 F.2d 504, 508 (1st
Cir. 1991).
Brandt appears to be right that under Massachusetts law
unjust enrichment does not always require a finding of
wrongdoing by the defendant. There are cases, albeit addressed
to a somewhat different problem (mutual mistake), that hold that
wrongdoing is not required so long as retention of the benefit
would be unjust. E.g., White v. White, 190 N.E.2d 102, 104
(Mass. 1963); National Shawmut Bank of Boston v. Fidelity Mut.
Life Ins. Co., 61 N.E.2d 18, 22 (Mass. 1945); see Keller v.
O'Brien, 683 N.E.2d 1026, 1029-33 (Mass. 1997). See generally
Restatement of Restitution ch. 2, intro. note (1936). Indeed,
the district court so instructed the jury on the unjust
enrichment claim against Gemini, listing three elements of
unjust enrichment that the plaintiff "must show":
First, a benefit or enrichment was conferred
upon the defendant . . . ; second, the
retention of that benefit or enrichment
resulted in a detriment to [the plaintiff];
and, third, there are circumstances which
make the retention of that benefit . . .
unjust.
However, if, as the above suggests, the district court
erred in its reason for affirming the dismissal of the claims
against J.P. Morgan and Cyker, the error was harmless--and this
is so even without reliance on the different reasons for those
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dismissals given by the bankruptcy judge. After receiving the
above instruction on unjust enrichment, which did not require a
showing of wrongdoing, the jury proceeded to reject on the
merits the claim that Gemini was unjustly enriched by the
payment made to Gemini in exchange for its Healthco shares. The
counterpart claims against J.P. Morgan and Cyker were of the
same order but weaker.
Gemini was the partnership that precipitated the
original abortive LBO and then actively cooperated in achieving
the second and successful one. As noted above, after its failed
attempt to take over Healthco, Gemini entered an agreement that
effectively gave it power to control the nominations of three of
the seven members of Healthco's board, and the three resulting
nominees were on Healthco's board, and voted for the buyout and
merger, when it approved the merger plan by a 5-2 vote. By
contrast, J.P. Morgan held its shares as recordholder for
others and played no active role in the buyout, merely tendering
shares in response to a public offer. And Cyker, who later sold
stock options in Healthco, opposed and voted against the buyout.
It is hard to see how a jury that found in Gemini's favor could
possibly have resolved in Brandt's favor the decidedly weaker
claims against the other two defendants.
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The jury verdict against Gemini thus entitles us to
treat any error in the rationale for dismissing the claims
against the other two defendants as harmless. See Fite v.
Digital Equip. Corp., 232 F.3d 3, 6 (1st Cir. 2000). As in
Wills v. Brown University, 184 F.3d 20, 30 (1st Cir. 1999),
there is no practical likelihood that the dismissed claim could
have succeeded where the tried claim failed. Other circuits
have similarly found summary judgment orders harmless based on
the implications of subsequent jury verdicts. See, e.g., Gross
v. Weingarten, 217 F.3d 208, 219-20 (4th Cir. 2000); Thompson v.
Boggs, 33 F.3d 847, 859 (7th Cir. 1994), cert. denied, 514 U.S.
1063 (1995); Wing v. Britton, 748 F.2d 494, 498 (8th Cir. 1984).
IV. The Fiduciary Duty Claims
One of the claims made by Brandt charged the directors
of HMD Acquisition Corp. with breaching their "fiduciary duties
to Healthco and HMD Acquisition and their successors,
shareholders, and creditors." The bankruptcy judge dismissed
this claim on the ground that these directors owed their duties
to HMD Acquisition and not to Healthco. Even though the
defendants also began to serve as directors of Healthco
beginning on April 30, 1991, when the tender offer closed, the
bankruptcy judge said that Healthco had by then "already
committed itself to the transaction through its prior board."
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The bankruptcy judge also said that although these were non-core
claims, he was entitled to determine them on the merits because
the parties had in effect consented to their disposition.
On April 23, 1997, the first day of the jury trial, the
district court announced that it was treating the bankruptcy
court judgment dismissing the fiduciary duty claims as a
proposed conclusion of law on a non-core matter, 28 U.S.C. §
157(c)(1), and then said that it was accepting and adopting the
bankruptcy court's recommendation. In this court, the
defendants argue that Brandt forfeited any appeal when he failed
to object to the bankruptcy court's recommendation within ten
days of the district court's recharacterization. See Fed. R.
Bankr. P. 9033(b). But if the bankruptcy court ruling was
converted at that time to a recommendation, there was no reason
for a further objection since the ruling was simultaneously
resolved on the merits by the district court. The district
court's merits resolution is merged in its final judgment and
properly before us.
Nonetheless, all this is for naught. In his opening
brief Brandt devotes only a single paragraph to the ruling on
HMD Acquisition's directors that he now seeks to reverse, saying
that any claim for duty breached by the directors of HMD
Acquisition "survived the merger." Brandt's terse argument does
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not attempt to address the lower courts' ruling that there was
no breach of any fiduciary duty to Healthco when the critical
decision was taken. Brandt's effort to offer new arguments in
his reply brief, after the defendants filed their answering
briefs, comes too late. Rivera-Muriente v. Agosto-Alicea, 959
F.2d 349, 354 (1st Cir. 1992).
V. Discovery Matters
Brandt argues that the bankruptcy court committed
reversible error in various discovery rulings. None of these
rulings was formally appealed to the district court. However,
during a pre-trial telephone conference on February 14, 1997,
the district court judge indicated that he was aware of the
bankruptcy judge's discovery orders and was reluctant to disturb
them, but would nonetheless "allow some minimum amount of
further pretrial discovery." To the extent that the district
court did modify the bankruptcy court's discovery orders, the
modified orders are obviously before us for review.
The jurisdictional issue is more debatable as to the
discovery orders of the bankruptcy court that were not
disturbed. Perhaps the district court's statements could be
regarded as an implicit affirmance of those orders (or at least
some of them) on interlocutory appeal; if so, the affirmance
would be merged into the final judgment and properly before us.
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We will assume this is so arguendo since it does not alter the
result.
The most controversial of the bankruptcy judge's orders
is that of June 20, 1996, which limited each side to ten
depositions as of right, in accordance with Federal Rule of
Civil Procedure 30(a)(2), with the remaining depositions to be
conducted from September through December 1996. Brandt had
already taken four depositions and was therefore allowed only
six more under the order. But the order also provided that
further depositions could be taken with leave of the court and
in accordance with the general principles set forth in Rule
26(b)(2). Brandt, who had planned to take sixty or so
additional depositions, immediately asked the bankruptcy judge
to remove any limit or at least to allow dozens of depositions,
and the bankruptcy judge refused.
On December 17, 1996, Brandt asked permission to take
additional depositions and for a one-month extension of the
deposition deadline. Although Brandt identified 19 additional
individuals and the subjects in question, the bankruptcy judge
denied the motion, saying that it came only two weeks before the
long-established deadline, a year-and-a-half after the complaint
was filed, and two-and-a-half years after the trustee began
investigation. The court said it was not impressed with the
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need for the depositions and that "[p]ermitting the requested
depositions [would] unnecessarily increase counsel's fees and
[would] more likely delay the trial scheduled to begin April 7,
1997."
Brandt then sought but was denied leave by the district
court for an immediate appeal. But, thereafter, in a pre-trial
conference on February 14, 1997, the district court allowed each
side to take an additional 20 hours of depositions before trial.
At a further pre-trial hearing on March 17, 1997, Brandt asked
for an adjournment of the April trial to allow for more
depositions; but after learning that the 20 additional
deposition hours had not yet been exhausted, the district court
rejected the adjournment motion. Later, the court granted
Brandt two additional depositions during the trial.
Discovery decisions by the bankruptcy judge or district
court are reviewed for abuse of discretion, and the discretion
in this area is very broad, recognizing that an appeals court
simply cannot manage the intricate process of discovery from a
distance. In Modern Continental/Obayashi v. Occupational Safety
& Health Review Comm'n, 196 F.3d 274, 281 (1st Cir. 1999), this
court spoke of the need for "a clear showing of manifest
injustice," saying that, to warrant reversal, the lower court's
discovery order must be "plainly wrong" and must be shown to
-28-
have resulted in "substantial prejudice" to the complaining
party. Although at first blush the limitations imposed by the
bankruptcy judge seem severe, even when somewhat modified by the
district court, there is more to the story.
Brandt devotes almost ten pages of his brief to
explaining that the case involves a large amount of money and
many parties and that none of the defendants registered any
objection to his original proposal to take sixty or more
depositions. Of course, the lack of objection from other
parties is not dispositive; the bankruptcy judge had an
independent responsibility to manage the litigation and conserve
the resources of the estate. But the size and scope of the
litigation might well have provided a basis for justifying a
greater number of depositions than was allowed.
However, the bankruptcy judge did not say that only ten
depositions were permitted. Obviously concerned with the slow
pace and mounting expense of discovery, he held the plaintiff's
feet to the fire to move quickly and then justify any additional
requests for depositions on a case-specific basis. In fact, the
order fixing the ten-deposition limit referred to Federal Rules'
provisions setting the criteria for justifying additional
discovery. Thus, the bankruptcy judge's order is not quite the
arbitrary limit that Brandt suggests.
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The more troubling aspect is the bankruptcy court's
refusal in December 1996 to extend the deadline and allow
further depositions. Brandt's request at that time was
reasonably detailed as to proposed deponents and the subject
matter for questioning. It is hard to lean too heavily on the
bankruptcy judge's brief statement that he was "not impressed
with the critical nature of the dispositions." And while the
district judge effectively allowed another four or five
depositions, this was far short of what Brandt had sought even
in December.
However we might otherwise feel about the severe limit
on depositions--and it would take a more detailed examination of
the record for us to make a final judgment--Brandt's opening
brief is virtually devoid of any showing that Brandt was
prejudiced. In the entire ten-page discussion there is only a
single elliptical sentence describing a specific witness. Even
this discussion does not make clear why Brandt thinks the
witness was so vital. Thus there is no reason to think that the
outcome of the case was affected by the limit on depositions.
Brandt says that this is a catch 22, since one can
never be sure what further discovery might have adduced. While
this (standard) argument has some force, it is not conclusive:
both in justifying discovery and in explaining later why a
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refusal to allow it caused harm, lawyers are accustomed to
showing specifically just what gaps in their claim and defense
might be filled by evidence within the likely knowledge of the
witness. And it is just such specifics that are absent from
Brandt's opening brief. Indeed, the trial being over, it should
have been even easier than before or at trial for Brandt to
explain just where he thinks that additional depositions could
have filled any apparent gaps in the case presented.
In his reply brief, Brandt does make a broader, but at
the same time better supported, showing that he was expected to
conduct too much discovery within too brief a time frame when
one takes into account both depositions and the huge number of
documents to be sorted and analyzed. But Brandt's time frame
may be an artificial one; there is some reason to think that he
could have made more progress at an earlier stage and that he
moved too slowly even after the initial discovery deadline was
set in June 1996.7 But we need not resolve this point, since,
7Brandt says that he had insufficient time to conduct
discovery between June 1996 (when the case management order was
adopted) and December 1996 (the scheduled end of discovery), as
well as insufficient time for additional discovery before trial
in April 1997. However, Brandt became Healthco's trustee in
October 1993, filed his complaint in June 1995, and had
possession of many of the documents that he complains he had
insufficient time to review long before June 1996. Further, in
the six months between the case management order and his motion
for additional depositions, Brandt conducted only six
depositions.
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as we have already noted, arguments first developed in a reply
brief come too late. Rivera-Muriente, 959 F.2d at 354.
Brandt's second claim of discovery error concerns the
failure of Coopers & Lybrand to produce documents from Coopers'
foreign offices relating to its review of Healthco's year-end
financial statements for 1990. The unsecured creditors earlier
sought to obtain these and other papers from Coopers, see Fed.
R. Bankr. P. 2004, and Brandt and Coopers agreed on the
production of certain of these documents, but apparently Coopers
failed to produce documents from its foreign offices. Yet it
was not until February 20, 1997, less than two months before the
scheduled trial date and six months after the bankruptcy court's
deadline for document discovery, that Brandt filed an expedited
motion with the bankruptcy court to obtain the audit-related
papers from Coopers.
Although Brandt now offers an explanation as to why
these papers were necessary, the request originally filed in the
bankruptcy court merely asserted that Brandt "need[ed] to review
all C & L memoranda and audit workpapers regarding Healthco's
foreign subsidiaries in order to prepare properly his case for
trial." And, not surprisingly, the bankruptcy court denied the
motion without explanation about a week after it was filed.
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There is no indication that Brandt then brought the
matter to the attention of the district court by an
interlocutory appeal; nor does it appear that, as trial
approached, he ever asked the district court for belated
document discovery against Coopers, which might conceivably have
been justified if a new need arose at the last minute. In any
event, Brandt apparently never gave the bankruptcy judge the
explanation he now gives us as to why the papers from Coopers'
foreign subsidiaries were necessary. Faced only with a bland
and belated statement that the papers were needed, the
bankruptcy court acted within its discretion in denying the
requested discovery.
Finally, Brandt says that the bankruptcy court erred
in refusing to permit him to discover the identity of the
beneficial owners of the Healthco shares that were tendered by
J.P. Morgan and Chancellor. Brandt argues that this information
was necessary so that Brandt could direct its unjust enrichment
claims against those who actually benefitted from the $15 per
share buyout of Healthco stock. This point takes on added
significance because the bankruptcy court relied on the fact
that J.P. Morgan and Chancellor were merely recordholders in
dismissing the unjust enrichment claims against them.
-33-
Brandt attempts to show that the denial of an
opportunity to discover beneficial ownership was based on the
bankruptcy court's misconstrual of its own orders. However,
there is no indication that a ruling on this discovery issue was
ever sought from the district court. In any case, the jury
rejected the unjust enrichment claims directed at defendants who
were both stockholders and active in promoting the LBO; it is
very hard to see how Brandt could have expected a more favorable
result if he had unearthed the names of passive beneficial
stockholders for whom record ownership was held in the name of
J.P. Morgan or Chancellor.
VI. Conduct of the Trial
Brandt objects to a set of alleged errors occurring
during the course of the trial and says that the errors and
misconduct of defense counsel fatally tainted the verdict.
Specifically, Brandt objects to references to settlements with
other defendants, admission of an expert's testimony and report,
time limits imposed by the trial judge, restrictions on the
"publication" of documents to the jury, and comments or evidence
designed to paint the trustee or the trustee's counsel in a bad
light. We consider the claims of error in the order in which
Brandt has briefed them.
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First, citing McInnis v. A.M.F., Inc., 765 F.2d 240
(1st Cir. 1985), Brandt complains of references to settlements
Brandt reached with other defendants. In McInnis, this court
construed broadly Federal Rule of Evidence 408, which excludes
settlements when offered to prove the validity or invalidity of
a claim. Id. at 246-48. There, the plaintiff, the victim in a
motorcycle accident, had sued the manufacturers (for making a
defective product); the plaintiff had also previously obtained
a settlement paid on behalf of the driver of a car that had hit
the motorcycle, and the trial court admitted evidence of the
settlement to show that the accident had been caused by the
driver of the car rather than the faulty manufacture of the
motorcycle. Id. at 241-42. McInnis held that using the
settlement agreement to show causation amounted to using it to
show the invalidity of a claim, and found that the error in
admitting evidence of the settlement required a new trial. Id.
at 246-48.
Here, Brandt says that one of the defendant's opening
statements at trial mentioned Brandt's settlements with other
parties. However, the passages that Brandt identifies refer not
to settlements but to the fact that Brandt had initially sued 69
people or businesses. The thrust was not that other defendants
had settled (and were therefore the real perpetrators) but
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rather that Brandt was a plaintiff who sued everyone in sight
regardless of whether the individual defendant was responsible.
This was not an offer of proof of, or a reference to, a
settlement, which is what Rule 408 and McInnis are concerned
with.
Some of Brandt's discussion of this issue suggests that
he is concerned not so much with the inference of settlement,
but with the inference that a large number of parties were
responsible for the transaction but the blame has been unfairly
focused on the few remaining at trial. While this was a
possible inference, it is not clear that, in this respect, the
comments complained of were very helpful to the defendants;
indeed, they might rather have suggested that the parties
remaining at trial were those most responsible. In any event,
the trustee makes no substantial effort to make a real showing
of prejudice.
Brandt also refers in his brief to a closing argument
by defense counsel insinuating that the proof offered in the
trial of negligence by Coopers & Lybrand "undermines the
integrity of the case against the defendants in this courtroom."
Whether or not the inference is a fair one, once again it has
nothing to do with settlement, there having been affirmative
evidence against Coopers & Lybrand offered during the trial
-36-
itself. It is worth adding that the first references to
settlement were made not by defendants but by Brandt's counsel.
Cf. Willco Kuwait (Trading) S.A.K. v. deSavary, 843 F.2d 618,
625 (1st Cir. 1998).
Second, Brandt says that the district court erred in
permitting the defendants to call Robert W. Berliner--Brandt's
accounting expert--to examine him about portions of a report he
had prepared for Brandt. The disputed portion of the report
concerns Berliner's conclusion that Coopers had negligently
performed the Healthco audit for 1990; the implication, which
defendants hoped would be drawn, was that Coopers and not the
defendants at trial bore responsibility for the unhappy outcome
of the LBO. Brandt made a timely objection that the report was
hearsay and now says that evidence regarding it was highly
prejudicial and should have been excluded under Federal Rule of
Evidence 403.
Brandt expressly admits in his opening brief that the
defendants had "a right to argue that Coopers was the cause of
the failure of Healthco," but objects that the defendants were
obliged to prove this through their own evidence and expert
witnesses. The latter is an overstatement: at Brandt's behest,
Berliner gave testimony arguably implying that Coopers did not
bear responsibility for the failure of Healthco, so he certainly
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could be cross-examined and impeached on this issue. Whether
the Berliner report was admissible as the admission of an
opposing party, and therefore admissible not just to impeach but
as proof of the facts asserted in it, is a different question
which the district court resolved in favor of the defendants.
The district court, supported on appeal by the
defendants, viewed the report as an admission of Brandt through
an agent (the expert) acting within the scope of his agency, and
therefore found it admissible under Federal Rule of Evidence
801(d)(2)(D). Since the report was prepared by Berliner during
his work for Brandt, it might at first blush seem to fit
comfortably within this rule, assuming always that Berliner
could be regarded as an agent for this purpose. Some authority
points in this direction but the Third Circuit emphatically
disagrees, saying that an expert is more like an independent
contractor offering his own opinion and is not "controlled" by
the party who employs him. Kirk v. Raymark Indus., Inc., 61
F.3d 147, 163-64 (3d Cir. 1995), cert. denied, 516 U.S. 1145
(1996) (discussed in 30B Graham, Federal Practice and Procedure
§ 7022, at 202 n.1 (2000)).
The authorities are fairly sparse, but we need not
decide the Rule 801(d) issue. Prior to introducing in evidence
the pertinent portion of the report, the defendants asked
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Berliner questions and elicited statements from him as to
Cooper's actions that covered more or less the same ground as
the report. As noted above, the defendants' questions were
permissible cross-examination. The resulting statements--not
unexpected unless Berliner was prepared to contradict his
report--were in-court statements not subject to a hearsay
objection. Accordingly, even if the report itself were
objectionable, any error in its admission is rendered harmless
by the questioning of Berliner. See Texaco P.R., Inc. v.
Department of Consumer Affairs, 60 F.3d 867, 886 (1st Cir.
1995).
As for the objection under Rule 403, it is hard to
understand Brandt's argument. Brandt agrees that whether
Coopers was careless was a pertinent issue and Berliner's
testimony and report were directed to that question. No doubt
the testimony had more impact because it came from Brandt's own
expert, but the expert was one whom Brandt himself had called to
testify at trial and who had given testimony that might
otherwise have led the jury to believe that Coopers was not at
fault. Assuming a Rule 403 objection to the Berliner evidence
was preserved, it was not error under Rule 403 to allow the
evidence.
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Third, Brandt objects, in the caption of one section
of his opening brief, to the district court's placing
"unreasonable pre-determined time limitations upon the trial,"
i.e., 60 hours. Then--in the body of the discussion--he
develops two arguments: that defense counsel manipulated the
time limits to Brandt's disadvantage (naming witnesses, forcing
Brandt to reserve some of his time to cross-examine them, and
then not calling those witnesses); and that the district court
promised Brandt that he could use all of his otherwise unused
time for his closing argument but then limited him to four and
a half hours when he still had ten hours remaining.
How trial time should be limited--obviously some
limitations are appropriate--raises interesting problems, see
Borges v. Our Lady of the Sea Corp., 935 F.2d 436, 442-43 (1st
Cir. 1991), but they need not be addressed here because (despite
the caption in the opening brief) Brandt's argument makes no
effort to show that the 60 hours of trial time allotted to each
side was unreasonable. The related suggestion that defense
counsel manipulated the time limits by listing witnesses who
were not called is mentioned in a single sentence, is not
seriously supported, and is therefore waived. Massachusetts
Sch. of Law v. American Bar Ass'n, 142 F.3d 26, 43 (1st Cir.
-40-
1998).8 We add that we have found no additional serious support
for this claim in Brandt's earlier arguments to the district
court on this same issue.
The bulk of Brandt's argument is directed to a
different and, as presented, more striking claim that the
district court promised unlimited time for closing argument (so
long as the 60-hour limit was not exceeded) and then broke this
promise. Brandt describes a colloquy during the trial where the
district court allegedly "prohibited the Trustee's counsel from
publishing to the jury relevant portions of voluminous documents
that had been received in evidence"; and Brandt then quotes his
counsel as asking the court whether it was "going to impose any
limitation on the time of closing assuming I still have it
available in my allotted hours." Brandt's brief then quotes the
court as saying: "You can have any length of closing."
The trial transcript shows that the district court
never made an unconditional promise to allow Brandt to use any
unused time in closing argument. The district court said, "You
can have any length of closing as long as--" and was then
interrupted by Brandt's counsel who said, "Then that solves a
8
A similar lack of development marks Brandt's suggestion, in
the "Issues Presented" portion of his opening brief, that the
district court erred in imposing a time penalty after Brandt
made an unsuccessful motion.
-41-
lot of my problem." Shortly before the close of evidence, the
court made clear that it did not intend to allow Brandt to make
a ten-hour closing argument even though he still had ten hours
left on his clock and, despite a pro forma protest, Brandt then
suggested four and a half hours and made no effort to show that
this would prejudice him or that he could not present the
substance of his case in this time frame. In the end he elected
to use less in order to complete his argument within one day.
Providing no specifics, Brandt intimates that he was
somehow limited in his ability to publish documents or
deposition transcript evidence to the jury during trial and that
he hoped to use the closing argument to read portions of this
evidence to the jury. In fact, the trial transcript shows that
Brandt published a great deal of such evidence during the trial,
and the colloquy to which he refers to show that he was limited
actually appears to have been concerned with how the materials
were presented, the district court having objected to Brandt's
counsel reading deposition pages at length to the jury while
purporting to question the witness. Once again, Brandt's brief
points to no specific material, let alone material of vital
importance, that he was effectively prevented from publishing to
the jury.
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Fourth, Brandt argues that during the course of the
trial, some defense counsel made arguments or introduced
evidence besmirching the character of the trustee by suggesting
that he was in the business of acting as a trustee for many
bankrupt companies, that he received fees based on the amount of
money he collected, that in the past he had sued many defendants
on claims like the ones pressed here, that he hired his own
company to provide administrative services to the estate, and so
on. These charges, says Brandt, were irrelevant and (if
marginally relevant in some respects) far more prejudicial than
is proper under Rule 403.
Brandt's complaints would have more force if he had not
invited many of these "charges" by the claims that his counsel
made during opening argument, claims later echoed by Brandt
himself when he briefly appeared as a witness. In opening to
the jury, Brandt's counsel sought to paint a picture of the
trustee as essentially a neutral party engaged in a quasi-
official function: counsel said that the trustee was
"supervised" by the bankruptcy judge, was "a disinterested
party" and would not "get to keep any of the money [from a
verdict] himself." Later, Brandt himself told the jury that the
money recovered from defendants would be "disseminated" to
Healthco's creditors. During cross-examination, Brandt conceded
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that the trustee would receive "a commission" from litigation
proceeds based on a percentage formula. See 11 U.S.C. § 326(a).
But even assuming that counsel for the trustee did not
provoke defense counsel's responses, and that one or more of the
defense counsel went too far in some of their remarks, the trial
judge addressed the issue appropriately. After concluding that
the comments were improper, the judge rebuked counsel and
directed the jury to disregard the comments. It is our practice
to presume that such instructions are followed, unless the
evidence is hopelessly sure to warp the jury's judgment. Conde
v. Starlight I, Inc., 103 F.3d 210, 213 (1st Cir. 1997).
The same conclusion, and much of the same analysis,
applies to Brandt's complaints about remarks in some defense
counsel's closing arguments that Brandt believes unfairly
portrayed his attorneys in an ill light. As with the comments
regarding Brandt himself, the trial judge responded to the
remarks about Brandt's attorneys by instructing the jury to
disregard negative comments about their integrity. Without
approving every remark or question posed by defense counsel, we
find that this is not a case in which the verdict should be
overturned or a new trial required. Cf. Fernandez v.
Corporacion Insular de Seguros, 79 F.3d 207, 210 (1st Cir.
-44-
1996); United States v. Maccini, 721 F.2d 840, 846-47 (1st Cir.
1983).
Affirmed.
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