Court Opinion

ID: 2963896
Source: CourtListenerOpinion
Date Created: 2015-09-21 21:17:00.632755+00
Date Added: 2024-06-11T11:42:47.992960
License: Public Domain

USCA1 Opinion

	

                            United States Court of Appeals
                                For the First Circuit
                                 ____________________

          No. 94-2161

                                LEVI C. ADAMS, ET AL.,

                                Plaintiffs, Appellees,

                                          v.

                                  ZIMMERMAN, ET AL.,

                                Defendants, Appellees.

                                 ____________________

                        FEDERAL DEPOSIT INSURANCE CORPORATION,

                                Defendant, Appellant.

                                 ____________________

          No. 94-2162

                                LEVI C. ADAMS, ET AL.,

                               Plaintiffs, Appellants,

                                          v.

                                  ZIMMERMAN, ET AL.,

                                Defendants, Appellees.

                                 ____________________

                        FEDERAL DEPOSIT INSURANCE CORPORATION,

                                 Defendant, Appellee.

                                 ____________________

          No. 94-2246

                                LEVI C. ADAMS, ET AL.,

                                Plaintiffs, Appellees,

                                          v.

                                  ZIMMERMAN, ET AL.,

                                Defendants, Appellees.

                                 ____________________

                        FEDERAL DEPOSIT INSURANCE CORPORATION,

                                Defendant, Appellant.

                                 ____________________

          No. 94-2247

                                LEVI C. ADAMS, ET AL.,

                               Plaintiffs, Appellants,

                                          v.

                                  ZIMMERMAN, ET AL.,

                                Defendants, Appellees.

                                 ____________________

                    APPEALS FROM THE UNITED STATES DISTRICT COURT

                          FOR THE DISTRICT OF MASSACHUSETTS

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

                                 ____________________

                                        Before

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

                                 ____________________

               Vincent M. Amoroso,  with whom Harry  A. Pierce and  Parker,
               __________________             ________________      _______
                              
          ____________________

               *Of the District of Massachusetts, sitting by designation.

                                          2

          Coulter, Daley & White were on brief, for plaintiffs.
          ______________________
               J. Scott Watson, Federal Deposit Insurance Corporation, with
               _______________
          whom David S. Mortensen, Glenn D. Woods, and Tedeschi, Grasso and
               __________________  ______________      ____________________
          Mortensen were on brief,  for defendant Federal Deposit Insurance
          _________
          Corporation.

                                 ____________________

                                   January 19, 1996
                                 ____________________

                                          3

                      LYNCH,  Circuit  Judge.    A  troubled  condominium
                      LYNCH,  Circuit  Judge.    
                              ______________

            development  led  to these  appeals,  which  raise issues  of

            federal  banking  law:    whether 12  U.S.C.     1823(e)  and

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

            FDIC, as receiver for  a failed bank, from liability  for the

            bank's sale  of unregistered securities.   We  hold that  the

            FDIC  has  no  such shield  and  is  liable,  but remand  for

            adjustment of the remedies fashioned by the district court.

                      These  consolidated cross appeals  arise out of the

            development of the  Hyannis Harborview Hotel.   The units  in

            the Hotel were marketed  and sold by the University  Bank and

            Trust  Company and  the other  defendants as  "pooled income"

            condominium  units.   Although these  units were  securities,

            they were never registered, and,  when the development of the

            Hotel  faltered,  the  plaintiffs, purchasers  of  individual

            units in the Hotel, sued the  Bank for, inter alia, the  sale
                                                    _____ ____

            of unregistered securities in violation of the  Massachusetts

            Uniform Securities Act, Mass.  Gen. L. ch. 110A,   410(a)(1).

            The  Bank  was  later declared  insolvent  and  the FDIC,  as

            receiver, was substituted for the Bank as a defendant.  After

            rejecting  the FDIC's  argument  that    1823(e) and  D'Oench
                                                                  _______

            barred  the plaintiffs'  registration  claims,  the  district

            court  held  the  FDIC  liable under  section  410(a)(1)  and

            awarded the plaintiffs rescissionary damages, attorneys' fees

            and interest.

                                         -4-
                                          4

                        I.  Background And Procedural History

                      In  1985,  Gary  Zimmerman,  president  of  Hyannis

            Harborview  Hotel, Inc.  (HHI), approached Robert  Keezer for

            financial  and marketing  advice about  converting  the Hotel

            into condominiums.   Keezer, who  was then the  Bank's second

            largest stockholder, Vice Chairman of its Board of Directors,

            and a member of  the Bank's Loan Committee,  agreed to do  so

            for  an  interest  in the  project.    Keezer  brought Norman

            Chaban, an expert in  condominium marketing, into the project

            to manage  the marketing  and sales of  the condominiums  and

            arranged to  have a $6.8 million  condominium conversion loan

            placed through the Bank.

                      To make  the Hotel  units more  attractive, Keezer,

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

            income"  basis.  That is, the purchasers were told they would

            receive income  based  upon their  pro rata  interest in  the

            entire  condominium  project   rather  than  on   the  income

            generated by their individual units.  The Hotel's Declaration

            of Trust and By-Laws   (these and the Master  Deed constitute

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

                      [1]  shall   be   liable   for    Common   Expenses
                           attributable   to   the   operation   of   the
                           Condominium  in  the  same  proportion  as his
                           Beneficial Interest in this Trust bears to the
                           aggregate  Beneficial  Interest  of  all  Unit
                           Owners . . . ;[and]

                                         -5-
                                          5

                      [2]  shall be entitled  to common profits, if  any,
                           attributable to  the operations of  the motel-
                           type Units  of  the Condominium  in  the  same
                           proportion  as his Beneficial Interest in this
                           Trust  bears  to   the  aggregate   Beneficial
                           Interest of all [unit] owners.

                      When several  of the plaintiffs were  unable to get

            financing to purchase their  units, the Bank's Loan Committee

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

            After   the  plaintiffs  executed  their  purchase  and  sale

            agreements,   which  incorporated  by  reference  the  Master

            Documents, the  Loan Committee (with Keezer  voting) approved

            end  loans  to  several  of  the  plaintiffs  to finance  the

            purchases.  This was  the first time that the  Bank's lending

            arm,   University   Financial   Services   Corporation,   had

            considered and approved such  end loans, a type of  financing

            arrangement  not considered standard procedure in the banking

            business  at the  time.   The  plaintiffs then  purchased the

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

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

            financing from other lending institutions.

                      The  units  were  never registered  as  securities.

            About six  months after  the plaintiffs purchased  the units,

            they were told  by HHI that, upon advice of counsel, it would

            no  longer  pay unit  income  based on  a rental  pool.   The

            unhappy  plaintiffs in  1989  filed  their six-count  amended

            complaint  against HHI,  Zimmerman,  Chaban,  Keezer and  the

                                         -6-
                                          6

            Bank,  inter alia.1  On May  31, 1991, the Comptroller of the
                   _____ ____

            Currency declared  the Bank insolvent and  appointed the FDIC

            as receiver.   The  FDIC was  substituted for  the Bank  as a

            defendant.

                      The district court granted summary judgment for the

            FDIC  based  on  its   special  defenses  under  D'Oench  and
                                                             _______

              1823(e), except on the  state securities registration count

            (Count V).  After  a bench trial, the district court issued a

            Memorandum  of Decision, Adams  v. Hyannis  Harborview, Inc.,
                                     _____     _________________________

            838  F.  Supp.  676 (D.  Mass.  1993),  holding, among  other

            things, that the plaintiffs were entitled to judgment against

            the FDIC on Count V.

                      The court  held that  the provisions in  the Master

            Documents  made the  Hotel units  "investment contracts"  and

            thus securities  within the  meaning of the  securities laws.

            Id. at 686.   It also  held that, in  light of the  financing
            ___

            arrangements made  for the  purchasers, Keezer was  acting as

            the Bank's agent in the sale  of the units and so his actions

                                
            ____________________

            1.  In addition to their claims under Mass. Gen. L. ch. 110A,
              410(a)(1), the  complaint  also alleged  (1) violations  of
              12(2)  of the Securities Act  of 1933 (the  "1933 Act"), 15
            U.S.C.   77l(2)  (Count I), (2) violations  of the anti-fraud
            provisions of   10(b) of the Securities Exchange Act of 1934,
            15 U.S.C.    78j(b), and  Rule  10b-5 of  the Securities  and
            Exchange Commission, 17  C.F.R.   240.10b-5  (Count II),  (3)
            common  law  fraud  and  deceit (Count  III),  (4)  negligent
            misrepresentation (Count IV), and (5) violations of the anti-
            fraud  provisions  of Mass.  Gen.  L.  ch. 110A,    410(a)(2)
            (Count  VI).    Zimmerman   was  eventually  dismissed  as  a
            defendant.

                                         -7-
                                          7

            would be imputed to the Bank.  Id. at 692.  It reaffirmed its
                                           ___

            rulings  that D'Oench and   1823(e) provided the FIDC with no
                          _______

            special  defenses to Count V,  id. at 691  n.14, and rejected
                                           ___

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

            the Bank were "bona fide"  loan transactions under Mass. Gen.

            L. ch.  110A,   401(i)(6)  and thus exempt  from registration

            requirements.  Id. at 694 n.16.
                           ___

                      The court  later  ordered a  rescissionary  damages

            award  pursuant to Mass.  Gen. L. ch.  110A,    410(a).  That

            statute provides for recovery  of "the consideration paid for

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

            from the  date of  payment, costs, and  reasonable attorneys'

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

            upon  tender  of  the  security,   or  for  damages  if  [the

            plaintiff] no longer owns the security."  Id.
                                                      ___

                      Specifically, the court  awarded to all  plaintiffs

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

            annum  from  February 11,  1994 to  the  date of  the damages

            order.    The  court  said  it   "novated"  the  amounts  the

            plaintiffs owed on  the first and second mortgage  notes held

            by the FDIC and HHI  respectively.  The "novation" apparently

            cancelled the  plaintiffs' debt on the mortgages.   The court

            denied  Lopes and  the Rileys  a rescissionary  damages award

            under  section 410(a)(1) because  it  believed it  could  not

            novate the loans  that Lopes  and the Rileys  owed to  third-

                                         -8-
                                          8

            party  banks.   It did,  however, give  Lopes and  the Rileys

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

            had made on their  mortgage loans plus the amount  they still

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

            securities law claims successfully asserted.

                      The court gave each  plaintiff the option of either

            accepting the rescission award (and the novation) in exchange

            for title to the  unit or, in lieu  of the rescission  award,

            retaining  the unit  free and  clear.  It  awarded attorneys'

            fees of $351,213  against Keezer, Chaban,  HHI and the  FDIC.

            Finally, it  ordered that  the plaintiffs' recovery  would be

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

            [the Bank] on a pro rata basis."

                      The  FDIC  appeals  the rulings  on    1823(e)  and

            D'Oench  with respect to Count  V, the finding  that the bank
            _______

            loans were not  "bona fide" loan  transactions, the award  of

            attorneys' fees  and post-insolvency interest,  and the order

            that any reconveyance be  made to all defendants rather  than

            just to the  FDIC.   The FDIC does  not challenge either  the

            district  court's  conclusion  that   the  Hotel  units  were

            securities  or  its  conclusion that  Keezer's  actions  were

            imputable  to  the  Bank.     The  plaintiffs'  cross-appeals

            challenge the  district  court's method  of  calculating  the

            rescissionary damages award, its  decision to limit the award

                                         -9-
                                          9

            in accordance with the rule of  ratable distribution, and its

            failure to grant fee enhancements.

                           II.  Section 1823(e) And D'Oench
                                                    _______

                      The FDIC argues that    1823(e) and D'Oench bar the
                                                          _______

            claims  under state  securities  law  because the  plaintiffs

            cannot   point  to   a   written   agreement  regarding   the

            "registrability of securities."  Section  1823(e) bars anyone

            from asserting against the  FDIC any "agreement" that is  not

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

            bank.    12 U.S.C.    1823(e).    D'Oench generally  prevents
                                              _______

            plaintiffs  from  asserting  as  either a  claim  or  defense

            against   the   FDIC  oral   agreements   or  "arrangements."

            Timberland Design,  Inc. v.  First Service Bank  for Savings,
            ________________________     _______________________________

            932 F.2d 46,  48-50 (1st Cir. 1991).  We  do not believe that

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

                                
            ____________________

            2.    As  modified  by  the  Financial  Institutions  Reform,
            Recovery, and Enforcement Act (FIRREA),   1823(e) provides:

                      No agreement which tends  to diminish or defeat the
                      interest  of the  [FDIC] in  any asset  acquired by
                      it . . . shall be valid  against the [FDIC]  unless
                      such  agreement  [is  in  writing  and satisfies  a
                      number of other requirements].

            12  U.S.C.     1823(e).   A  circuit  split  appears to  have
            developed  over  the  question   of  whether     1823(e)  has
            preempted D'Oench.  Compare FDIC v. McClanahan, 795 F.2d 512,
                      _______   _______ ____    __________
            514 n.1 (5th Cir. 1986) ("there  is no reason to suppose that
            Congress intended [by the passage of   1823(e)] to forbid the
            rule of estoppel  from being  applied when the  FDIC sues  as
            receiver  of a failed bank") with Murphy v. FDIC, 61 F.3d 34,
                                         ____ ______    ____
            39  (D.C. Cir. 1995) (relying  on O'Melveny &  Myers v. FDIC,
                                              __________________    ____

                                         -10-
                                          10

                      While expansive in  scope,   1823 and D'Oench  only
                                                            _______

            protect  the  FDIC from  claims  or  defenses  based upon  an

            "agreement" or "arrangement."  See 12 U.S.C.   1823(e); In re
                                           ___                      _____

            NBW  Commercial Paper  Litigation, 826  F. Supp.  1448, 1461,
            _________________________________

            1466 (D.D.C. 1992).  Although  the concept of "agreement" has

            been broadly defined to include not only promises to perform,

            but   also  misrepresentations  or  material  omissions,  see
                                                                      ___

            Langley  v.  FDIC, 484  U.S.  86,  92-93 (1987),  plaintiffs'
            _______      ____

            claims  against the FDIC are  not based upon  an agreement or

            arrangement.3

                      Liability  for failure to register a security under

            Mass. Gen. L. ch. 110A,   410(a)(1) is strict.   The right to

            a remedy  under section 410(a)(1) is  independent of anything

            that  was  said  or  agreed  to  between  the  Bank  and  the

            plaintiffs.   The  act  of  selling the  securities  is  what

            created  the liability and, as  the district court found, the

            Bank,  through  Keezer,  sold  the   plaintiffs  unregistered

            securities.    See  NBW,  826  F.  Supp.  at  1468  (sale  of
                           ___  ___

                                
            ____________________

            114  S. Ct. 2048 (1994)  for the proposition  that the FIRREA
            preempts D'Oench);  see also DiVall Insured  Income Fund Ltd.
                     _______    ___ ____ ________________________________
            Partnership  v. Boatmen's First Nat'l Bank of Kansas City, 69
            ___________     _________________________________________
            F.3d  1398, 1402 (8th Cir.  1995) (D'Oench and  holder in due
                                               _______
            course doctrines preempted by FIRREA); Timberland Design, 932
                                                   _________________
            F.2d at 51 (not reaching  the preemption question because  it
            had been raised for the first time on appeal).   We need not,
            and  do not, reach the  question of whether  D'Oench has been
                                                         _______
            preempted by   1823(e).

            3.  Indeed,   after  Langley,   the  terms   "agreement"  and
                                 _______
            "arrangement"  appear to  be virtually  synonymous.   See id.
                                                                  ___ ___
            ("agreement" is "scheme or arrangement"). 

                                         -11-
                                          11

            unregistered securities in violation  of   12(1) of  the 1933

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

                      The FDIC's  attempt to shoehorn this  case into the

            Supreme Court's Langley decision is unfitting.  Starting with
                            _______

            the observation in Langley that the term "agreement" includes
                               _______

            an  implicit  condition  such   as  the  "truthfulness  of  a

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

            that  the plaintiffs'  claims depend  on the  Bank's "implied

            warranty" that the securities it was selling were legal.  But

            to  the extent that such a warranty can even be characterized

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

            depend  upon it.  The  claims come from  an independent legal

            obligation  arising  from  the  act  itself  --  the  sale of

            unregistered securities -- and not from any warranty that the

            action was legal.  See NBW, 826 F. Supp. at 1468.
                               ___ ___

                      The  FDIC  says  that  D'Oench  and    1823(e)  are
                                             _______

            designed to shield the FDIC from hidden  liabilities and that

            the  FDIC could not have  known from the  Bank's records that

            the Bank had  sold securities  to the plaintiffs.   But  that

            does  not appear  to  be  the  case.    Although  the  Bank's

                                
            ____________________

            4.  This case is not like  typical securities fraud cases  in
            which plaintiffs  claim that they were induced  to purchase a
            security  based  upon   some  material  misrepresentation  or
            omission.   In such cases,  a plaintiff's claim  depends upon
            something the bank  said or  did that  misled the  plaintiff.
            See,  e.g., Dendinger v. First  Nat'l Corp., 16  F.3d 99 (5th
            ___   ____  _________    __________________
            Cir. 1994);  Kilpatrick v.  Riddle, 907 F.2d  1523 (5th  Cir.
                         __________     ______
            1990), cert. denied, 498 U.S. 1083 (1991).      
                   _____ ______

                                         -12-
                                          12

            documents did  not specifically use the  term "security," the

            pooled income arrangement is disclosed in the documents.  The

            HHI  Declaration of  Trust  and By-Laws  specifically provide

            that  the Hotel would be  operated on a  pooled income basis.

            The mortgages were reflected in the Bank's records.  The Loan

            Proposal for the conversion  loan states that the condominium

            would  be operated on a pooled income basis.  The plaintiffs'

            purchase  and  sale agreements  incorporate by  reference the

            Declaration  of Trust  and  By-laws; and  the Loan  Extension

            documents for the plaintiffs referenced the condominium units

            as  collateral.  A review  of the documents  pertinent to the

            plaintiffs' promissory  notes would  have revealed the  facts

            showing that the Hotel units were pooled income units.

                      Perhaps  recognizing this problem  with its general

            policy argument, the FDIC presses a slightly refined variant.

            It  argues  that    1823(e)  and  D'Oench  apply  because  no
                                              _______

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

            a plaintiff and the Bank that "memorializes any obligation of

            the Bank with  respect to  a securities  transaction."   This

            argument,  which is premised on the notion that there must be

            a written  agreement that  specifically states in  terms that

            the condominium units are  securities, rests on the incorrect

            assumption that the bank examiners  must be able to determine

            the  legal  import  of  the  facts  reflected  in the  bank's

            records.   This  assumption  ignores that  "[t]he real  issue

                                         -13-
                                          13

            . . . is not  whether the  bank examiners could  tell whether

            the  bank's  actions  were  illegal (or  indeed  whether  the

            examiners knew  what the  law was),  but rather,  whether the

            factual  predicate   for  the  application  of   the  law  is

            established on the  bank's books."  NBW, 825 F. Supp. at 1469
                                                ___

            n.28.5    That  the  plaintiffs' claims  rest  on  collateral

            documents referenced  in  the  books of  the  Bank  does  not

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

            an agreement or arrangement. Id.6
                                         ___

                                
            ____________________

            5.  This case is  quite similar  to NBW, in  which the  court
                                                ___
            held  that the  FDIC could  be  liable for  a bank's  sale of
            unregistered securities.  The  FDIC's attempts to distinguish
            NBW  on its facts are  unpersuasive.  First,  the FDIC argues
            ___
            that the bank in NBW was  only a seller of securities and the
                             ___      ____
            Bank  here was  both a  seller and  a lender.   But  all that
                            ____
            really means is that the NBW plaintiffs paid for the security
                                     ___
            with  cash while  the plaintiffs  here paid for  the security
            with a promissory note and mortgage.  Second, the FDIC argues
            that  in NBW  there was  a written  agreement which  in terms
                     ___
            provided  for  a  securities  purchase.    But  that  is  not
            necessary, and  the Bank's  records reflect the  sale of  the
            pooled income units.   Third, the FDIC claims that  unlike in
            NBW where the bank was self-dealing, the Bank here was simply
            ___
            acting as a  third party  lender in this  transaction.   That
            claim is just not supported by the record.  Moreover, none of
            these distinctions bears on  the central insight of NBW  that
                                                                ___
            the  plaintiffs'  claims  against  a bank  for  the  sale  of
            unregistered  securities do  not arise  from an  agreement or
            arrangement.

            6.  It is fair  for the FDIC to  make the very general  point
            that the plaintiffs' claims  depend upon an agreement because
            they depend  upon a "sale"  of a  security and a  sale is  an
            agreement.   However, it is undisputed that the sale of these
            units to  the plaintiffs is  clearly reflected in  the Bank's
            records  sufficient to  satisfy both    1823(e)  and D'Oench.
                                                                 _______
            The  FDIC  suggests however  that there  is  an absence  of a
            writing,  sufficient   to  satisfy    1823(e)   and  D'Oench,
                                                                 _______
            specifically mentioning in terms that the Bank was a "seller"
            of the units.  As with the FDIC's argument that the documents

                                         -14-
                                          14

                      The  only  policy consideration  underlying D'Oench
                                                                  _______

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

            FDIC be  able to value  the assets of  a bank by  reviewing a

            bank's  records either  for  purposes of  liquidation or  for

            purposes  of  a purchase  and  assumption  transaction.   See
                                                                      ___

            Langley, 484 U.S.  at 91-92.  Such  a valuation must be  done
            _______

            "'with great  speed, usually overnight, in  order to preserve

            the  going  concern value  of the  failed  bank and  avoid an

            interruption in  banking services.'"  Langley, 484 U.S. at 91
                                                  _______

            (quoting Gunter v. Hutcheson,  674 F.2d 862, 865  (6th Cir.),
                     ______    _________

            cert.  denied, 459 U.S. 1059 (1982)).  Where the Bank records
            _____  ______

            reflect  adequately the  sale of  the Hotel  units as  pooled

            income units, these concerns appear to be satisfied.7

                                
            ____________________

            must have  stated in  terms that  the units  were securities,
            this  argument assumes  that  the legal  significance of  the
            documents  must be apparent to the bank examiners in order to
            overcome    1823(e) and D'Oench.   Just as  the pooled income
                                    _______
            language in the Master Documents made the units securities by
            operation of securities law,  the loan documents reflected in
            the record,  as  the district  court concluded  and the  FDIC
            concedes, made Keezer's  sale of the  units imputable to  the
            Bank by  operation of principles of  agency incorporated into
            securities law.   That the  legal significance of  these loan
            transactions was not explicitly spelled out  does not bar the
            plaintiffs' claims.  See  NBW, 826 F. Supp. at 1469 n.29.
                                 ___  ___

            7.  Plaintiffs  have also argued that notwithstanding whether
            their  claim depends  upon  an agreement,  their claims  will
            affect no "asset" for purposes of   1823(e).  They point  out
            that  where  notes  are  invalidated  by  acts  or  omissions
            independent of an alleged secret agreement, the notes are not
            an  asset  protected by    1823(e).   See  FDIC v.  Bracero &
                                                  ___  ____     _________
            Rivera, Inc., 895 F.2d 824, 830 (1st Cir.  1990).  They argue
            ____________
            that because  the sales of  the condominium units  were void,
            see Kneeland  v.  Emerton, 183  N.E.  155, 159  (Mass.  1932)
            ___ ________      _______
            (under predecessor to  Massachusetts Uniform Securities  Act,

                                         -15-
                                          15

                    III.  Sales Of Securities Or Bona Fide Loans?

                      The  FDIC also  says that  there  were no  sales of

            securities,   arguing  that   these   were  bona   fide  loan

            transactions  instead.   We  disagree.   The pertinent  state

            securities statute  provides that  the terms "sale,"  "sell,"

            "offer," or "offer  to sell"  do not include  any "bona  fide

            pledge or loan."  Mass. Gen. L. ch. 110A,   401(i)(6).

                      The  record  amply  supports  the  district court's

            conclusion  that the  loans  were not  made  in the  ordinary

            course  of business  and were  not bona fide.   The  Bank and

            Keezer operated  together in  the marketing and  financing of

            these condominium  units to the  plaintiffs.  When  it became

            apparent that  the project might fail  because the purchasers

            were having trouble getting financing, the Bank departed from

            standard  banking  practice  and  offered end  loans  to  the

            plaintiffs  (except Lopes and the  Rileys).  When  it came to

            granting the end loans to  the plaintiffs, the Bank's  agent,

                                
            ____________________

            sale  of  stock  was  a  void  transaction  where  notice  of
            intention  to  sell  shares  had  not  been  filed  with  the
            Department of Public Utilities),  the promissory notes  based
            upon  the units  were also  void,  and that,  accordingly, no
            asset passed to  the FDIC when  it took over  the Bank.   The
            FDIC counters that notwithstanding Kneeland's use of the term
                                               ________
            "void,"   the  case   actually   employed   the  concept   of
            "voidability," see id. (stating that the transaction was void
                           ___ ___
            at the buyer's instance),  and that an asset does pass to the
            FDIC  if the  transaction  is voidable.    See Kilpatrick  v.
                                                       ___ __________
            Riddle, 907 F.2d 1523, 1528 (5th Cir. 1990).  Because we hold
            ______
            that the plaintiffs' claims  in this case do not  depend upon
            an  agreement  or  arrangement,  we  need  not  resolve  this
            question.

                                         -16-
                                          16

            Keezer, knew or  should have  known that the  sales were  not

            registered and therefore could not be completed in compliance

            with the  securities laws.   He nevertheless  participated in

            the vote to approve the end loans.  That the  substitution of

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

            the interest  of  the  Bank  and its  shareholders  does  not

            establish that  the  Bank  was involved  in  bona  fide  loan

            transactions.  The substitution was based on  the transfer of

            an unregistered  security to the plaintiffs.  Where the loans

            were  entered  into in  the course  of  the Bank's  effort to

            finance and  market, through  its agent, securities  that the

            Bank  knew or  should have  known could  not be  sold without

            registration, the loans were not bona fide.

                                     IV.  Remedy

                      Each  side complains  about  the  district  court's

            remedial  order.   Plaintiffs argue  that the  district court

            erroneously  ordered that  any recovery  against the  FDIC be

            subject to the FDIC's responsibility to distribute the assets

            of the failed bank in a ratable manner.  They also argue that

            the  district court's  method  of  setting the  rescissionary

            damages was infirm, that  the award improperly excluded Lopes

            and the Rileys,  and that  the court should  have awarded  an

            attorneys' fee  enhancement.  For  its part, the  FDIC claims

            that the  district court  erred  in awarding  post-insolvency

                                         -17-
                                          17

            interest and attorneys' fees  and in requiring the plaintiffs

            accepting  the rescissionary damages  to reconvey their units

            to all of  the defendants rather than only to  the FDIC.  The

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

            unless it  rests on  an erroneous  legal determination.   See
                                                                      ___

            Downriver Community Federal Credit  Union v. Penn Square Bank
            _________________________________________    ________________

            through  FDIC,  879 F.2d  754,  758 (10th  Cir.  1989), cert.
            _____________                                           _____

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

                      A.   Ratable Distribution
                           ____________________

                      The FDIC, as receiver, is authorized to  distribute

            the assets  of a failed bank  to all creditors on  a pro rata

            basis pursuant  to the National  Bank Act at 12  U.S.C.    91

            and 194,  and the  FIRREA at  12 U.S.C.    1821(i)(2).8   See
                                                                      ___

            also United States  ex rel. White v. Knox, 111  U.S. 784, 786
            ____ ____________________________    ____

                                
            ____________________

            8.  Section 91 prohibits a bank facing insolvency from making
            payments that prefer  some creditors over others.   12 U.S.C.
              91.  Section  194 requires a ratable distribution of assets
            among  all  general creditors  entitled  to  a share  in  the
            receivership  estate.   12 U.S.C.    194 (providing  that the
            FDIC "shall make a ratable dividend . . . on  all such claims
            as may  have been proved to [its] satisfaction or adjudicated
            in a  court of competent jurisdiction").   Section 1821(i)(2)
            limits  the  FDIC's liability  as  receiver to  the  amount a
            claimant would have received in a straight liquidation of the
            failed  bank. 12 U.S.C.    1821(i)(2) ("The maximum liability
            of the [FDIC] . . . to any person having a  claim . . . shall
            equal the  amount such  claimant would  have received  if the
            [FDIC]  had liquidated  the  assets and  liabilities of  such
            institution . . . .").    Section  1821(i)(2)  does  not,  by
            itself, resolve  the issue of whether a plaintiff is entitled
            to  a preference  because the  statute does  not "alter[]  or
            define[]  the  priorities [that]  define  liquidation value."
            Branch v. FDIC, 825 F. Supp.  384, 417 & n.35 (D. Mass. 1993)
            ______    ____
            (internal quotation omitted).

                                         -18-
                                          18

            (1884) ("Dividends are to  be paid to all  creditors ratably;

            that is  to say,  proportionally.  To  be proportionate  they

            must  be made by some uniform rule.  . . .  All creditors are

            to be treated alike.").  While the ratable distribution  rule

            is  not absolute,  the  statutory  framework  is  "distinctly

            unfriendly  to  the  recognition   of  special  interests  or

            preferred  claims."   Downriver,  879 F.2d  at 762  (internal
                                  _________

            quotation omitted).

                      A plaintiff seeking an  exception from the pro rata

            rule  bears a heavy burden of proof to show that a preference

            is warranted.  Id.;  see also Branch 825 F. Supp.  at 416.  A
                           ___   ___ ____ ______

            preference might be warranted where  a plaintiff is a secured

            creditor  and  is  seeking  to  enforce  a  lien  against the

            security, see  Ticonic Nat'l Bank  v. Sprague, 303  U.S. 406,
                      ___  __________________     _______

            413  (1938),  or  where  the plaintiff,  although  a  general

            unsecured creditor, can show an entitlement to a constructive

            trust.   See  Downriver,  879  F.2d  at  762.    Because  the
                     ___  _________

            plaintiffs can  show neither, their awards are subject to pro

            rata distribution.

                      None  of the  plaintiffs has  a secured  claim, and

            they argue to no  avail that they have claims  entitling them

            to a constructive trust.  The plaintiffs must have shown, and

            did  not,  that  the   Bank's  fraudulent  conduct  caused  a

            particular harm that is not shared by substantially all other

            creditors, and that granting the relief would not disrupt the

                                         -19-
                                          19

            orderly  administration  of the  estate.   Id.   The district
                                                       ___

            court found, however, that  the defendants committed no fraud

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

            generally a  prerequisite to the formation  of a constructive

            trust.9   Moreover,  the  plaintiffs have  not  shown that  a

            preference   would    not   interfere   with    the   orderly

            administration of  the estate.   The district  court properly

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

            distribution rule.

                      B.   Rescissionary Damages Award
                           ___________________________

                      Rescissionary  damages  against  the  FDIC  and the

            other defendants, jointly and  severally, were awarded to all

            plaintiffs except  Lopes and the Rileys.   The district court

            also "novated"  the remaining debt of  all plaintiffs (except

            Lopes  and the Rileys) on the first and second mortgages held

            by the FDIC and HHI.  The plaintiffs quarrel with this aspect

            of  the district  court's award  in two  respects:   that the

            district  court  used  an  incorrect  method  of  calculating

                                
            ____________________

            9.  The only fraudulent behavior the  plaintiffs attribute to
            the Bank stems from the Bank's opposition to  the plaintiffs'
            Motion  for Order Segregating Assets filed a few weeks before
            the Bank was  declared insolvent. In opposing the motion, the
            Bank represented  to the court  that any harm  the plaintiffs
            feared  from an FDIC takeover was mere speculation.  The Bank
            failed to inform the  court that it was in  negotiations with
            the FDIC and a  takeover by the FDIC  was imminent.   Without
            condoning this  regrettable lapse  by the  Bank, it  does not
            help the  plaintiffs.   The plaintiffs have  not demonstrated
            that they would have been entitled to a segregation of assets
            had the  Bank properly  informed the court  of its  financial
            condition as it should have.

                                         -20-
                                          20

            damages,  and  that the  district  court  improperly excluded

            Lopes  and the  Rileys from  the rescissionary  damages award

            that ran against the FDIC.

                      1.  Method of calculation.
                          _____________________

                      The district  court ordered an award of rescission,

            excluding interest, of $654,949.   The district court started

            with the total  amount of  money at issue  -- the  principal,

            interest  and other  expenses  paid by  the plaintiffs  minus

            income received and the  unpaid debt on the first  and second

            mortgages held by the  FDIC, for a total of  $2,072,205.  The

            court  then subtracted the  unpaid mortgage debt  owed to the

            FDIC  and HHI, a total  of $1,271,100, and  the principal and

            interest  payments made by Lopes  and the Rileys,  a total of

            $146,156,  to  reach $654,949.    The  court then  ordered  a

            "novation of the notes owed by the plaintiffs  to defendants,

            HHI and the  FDIC," although the court apparently intended an

            outright cancellation of the notes.

                      Plaintiffs  argue that  the  district court  should

            have awarded them the entire amount of consideration paid for

            the  units,  including  the  unpaid portions  of  the  loans,

            subject  to a  setoff  by the  FDIC  and HHI  for  the unpaid

            portions of the  loans.   They also argue  that the  district

            court should  also have  allowed the  plaintiffs to  keep the

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

                                         -21-
                                          21

            the  FDIC that would be left unpaid because of the insolvency

            of the Bank.

                      As a  practical matter, there  is little difference

            between what the district court ordered (return of principal,

            interest, fees  and expenses  minus income and  "novation" of

            the  loans) and  what the  plaintiffs are  requesting (entire

            cost of loans  plus amount  paid on the  units minus  income,

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

            plaintiffs recognize,  the  district court's  award  "with  a

            solvent defendant, would fully  fund rescission and return to

            Plaintiffs  their full damages in exchange for title to their

            units."  The plaintiffs argue,  however, that their method of

            calculation makes a difference  because the Bank is insolvent

            and will  not be able  to pay  the damages judgment  in full.

            Plaintiffs  say their method allows them to keep the units as

            a setoff and thus  make up any shortfall between  the damages

            owed and the  pro rata share of  the Bank's assets they  will

            receive.  We disagree.

                      A setoff is often  justified where a plaintiff owes

            a debt  to an insolvent party  and will be forced  to pay off

            that  debt  without  being  allowed to  recover  a  debt  the

            insolvent party may  owe to the plaintiff.  See  In re Saugus
                                                        ___  ____________

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

            typically employed where a depositor, who also owes  money to

            a  bank,  seeks  to offset  the  amount  owed  by the  amount

                                         -22-
                                          22

            deposited.  It is employed where  the parties have reciprocal

            or mutual obligations to one another.

                      The  plaintiffs  have  tried  to  characterize  the

            obligations   between  the   parties  as  being   mutual  and

            appropriate for a setoff of the units.  Under the plaintiffs'

            argument,  the offsetting  obligations would  exist were  the

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

            for  the entire amount of the loans and the amount plaintiffs

            have paid on the units (minus income) and  (2) then award the

            FDIC and HHI the amounts the plaintiffs owe on the promissory

            notes.    With such  offsetting  obligations, the  plaintiffs

            argue,  they should be entitled  to set off  the units, i.e.,

            keep them, in the face of the Bank's insolvency.  See FDIC v.
                                                              ___ ____

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

            ("It is well settled  that the insolvency of a  party against

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

            the  allowance  of  a  set-off  not  otherwise   available.")

            (internal quotations omitted)).

                      This  argument,  however, is  incongruous  with the

            plaintiffs' theory of recovery in this case.  Plaintiffs here

            sought rescission, a form of restitution.  Under this theory,

            the  restitution by  the  defendant of  the ill-gotten  gains

            cannot be enforced unless  the "plaintiff[s] return[] in some

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

            defendant."  Arthur L. Corbin, Corbin on Contracts   1114, at
                                           ___________________

                                         -23-
                                          23

            608 (1964); see also  Restatement of Restitution    65 (1937)
                        ___ ____

            (the   general  rule  is  that  the  right  of  a  person  to

            restitution  for  a  benefit  conferred  upon  another  in  a

            transaction is  dependent upon  his  return of,  or offer  to

            return,  anything  the  person  received as  a  part  of  the

            transaction).  Thus, under the applicable statute, rescission

            is allowed upon  "tender of the  security" by the  plaintiff.

            See Mass.  Gen. L. ch. 110A,    410(a); see also  15 U.S.C.  
            ___                                     ___ ____

            77l.

                      Since  tender  of  the  unit  is  a  condition  for

            triggering the  obligation of  the Bank to  repay the  amount

            paid  for the units, the plaintiffs cannot also use the units

            as setoffs.  The  Bank owes the plaintiffs nothing  until the

            plaintiffs relinquish  their rights to  the units.   And once

            the plaintiffs  no  longer  have  rights to  the  units,  the

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

                                
            ____________________

            10.  Even assuming  that the plaintiffs might,  in theory, be
            entitled to set off of the units, that does not automatically
            entitle them to do so.  A setoff may be denied in order to do
            "equity,  prevent  injustice,   and  achieve  the   goals  of
            procedural  fairness."   In re  Lakeside Hospital,  Inc., 151
                                     _______________________________
            B.R. 887, 893  (N.D. Ill. 1993).  In equitable terms it could
            be viewed  that plaintiffs  have received windfalls  from the
            remedial  order.  First, a  portion of the consideration paid
            for the security  awarded to the plaintiffs  was the interest
            component  of  the  mortgage  payments.   Assuming  that  the
            interest  on the Bank's loans to the plaintiffs was at market
            rate, the effect  of the  award is to  give the plaintiffs  a
            market rate  of interest on the price of the units as well as
            the  statutory  interest award  of 6%.    This issue  was not
            presented by the  parties and we  do not reach  the issue  of
            whether      410(a)   allows    for   the    calculation   of
            "consideration"  in such a way.   Second, the plaintiffs were

                                         -24-
                                          24

                      Although  the  general   method  employed  by   the

            district  court in reaching  the rescissionary  damages award

            was  appropriate,  one  aspect  of  the  order  needs  to  be

            modified.   The  district court ordered  a "novation"  of the

            amounts the plaintiffs owed on  the first and second mortgage

            notes  to  the FDIC  and HHI.   A  "novation" is  typically a

            "substituted contract that  includes as a  party one who  was

            neither  the obligor nor  the obligee of  the original duty."

            Restatement (Second)  of Contracts   280 (1979).  The court's

            order,  however,  does  not  provide for  a  substitution  of

            parties and, given the  cases cited by the district  court in

            its order, Limoli  v. Accettullo, 265 N.E.2d  92 (Mass. 1970)
                       ______     __________

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

            in which the courts  cancelled the notes, it does  not appear

            that  a  substitution  was  intended.   Because  an  outright

            cancellation  of the  notes may  render unclear  the relative

            rights of the parties  in the unit, we vacate the  portion of

            the  order  which "novates"  the  notes  along with  granting

            rescissionary  damages and  remand with  directions  that the

            district  court  order  a  novation  whereby  the  "judgment"

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

            obligors  on the  notes  secured  by  the mortgages  and  the

                                
            ____________________

            given  the  option  of  keeping the  units  free  and  clear.
            Because this allows the  plaintiffs to keep what  they bought
            and effectively have a return of a significant portion of the
            ___
            consideration  paid for  the unit,  it might  be viewed  as a
            potential over-recovery.

                                         -25-
                                          25

            plaintiffs are discharged of any liability on the notes.  Any

            units eventually tendered to the judgment defendants would be

            subject to the mortgages.11

                      2.   Lopes and the Rileys.
                           ____________________

                      Lopes and the Rileys were denied any relief against

            the  FDIC because  they  had given  mortgages and  promissory

            notes  to  disinterested  third  party banks  and  the  court

            believed  that it could  not "novate" those  debts.  Although

            the  district court  correctly concluded  that it  should not

            interfere  with the debts owed  to the third  party banks, it

            improperly  denied Lopes and the Rileys rescissionary damages

            against the FDIC.  The only

            difference  between  Lopes  and  the  Rileys  and  the  other

            plaintiffs is  that Lopes  and the Rileys  paid substantially

            more  cash to the defendants  when purchasing the  units.  It

            was  not the entire price  because both Lopes  and the Rileys

            appear to have given second mortgages to  HHI.  Lopes and the

            Rileys  were  still  purchasers of  unregistered  securities.

            They  should therefore be able  to recover from  the FDIC and

                                
            ____________________

            11.  This approach  keeps the respective rights  in the units
            following the  award relatively  clear.  After  the transfer,
            the judgment  defendants would own  as tenants in  common the
            units  subject  to  the  first and  second  mortgages  on the
            properties.  If the  defendants were to default on  the notes
            to  the  Bank, then  the FDIC  could  foreclose on  the first
            mortgage and use  the proceeds  of any sale  to satisfy  that
            debt.   Anything  left over  would be  used to  satisfy HHI's
            second mortgage debt.  Anything remaining after that would be
            distributed to the defendants, and presumably could be sorted
            out in an action among the defendants.   

                                         -26-
                                          26

            the other  defendants the  consideration paid for  the units.

            See Mass. Gen.  L. ch.  110A,   410(a).   Unfortunately,  the
            ___

            record does  not clearly  reveal the consideration  Lopes and

            the Rileys paid for the units.  On remand the  district court

            should hold  a hearing  to determine the  consideration Lopes

            and  the  Rileys paid  for  the  units.   As  with  the other

            plaintiffs,  Lopes' and  the  Rileys' entire  claims will  be

            subject to the ratable distribution rule.

                      Lopes'  and the Rileys'  claims do raise additional

            wrinkles for consideration on remand.   The novation given to

            the plaintiffs  who borrowed  from the Bank  was an  implicit

            setoff of  the amount of  the mortgage debt.   Lopes  and the

            Rileys are  not entitled to such an  implicit setoff because,

            with respect  to the  loans to  the third-party  banks, there

            would  be   no  mutuality  of  obligation.     Absent  mutual

            obligations,  a setoff, or  its equivalent, is inappropriate.

            Cf.  In  re  Lakeside  Community Hospital,  151  B.R.  at 891
            ___  ____________________________________

            (setoff in  bankruptcy).  Unlike the  other plaintiffs, Lopes

            and  the Rileys  must  bear  the  full  cost  of  the  Bank's

            insolvency.

                      If Lopes and  the Rileys convey their  units to the

            defendants,  they  will  remain  liable on  their  promissory

            notes.   It may be  the case, however,  that the  third party

            banks will refuse to  allow Lopes and the Rileys  to reconvey

            their  units to the defendants.  If that occurs, the district

                                         -27-
                                          27

            court may want to make clear that their remedy  is subject to

            any  terms provided in  their loan agreements  with the third

            party banks.   The district court may  also consider treating

            such a situation like that in which a purchaser cannot tender

            the security because  she no longer owns  it.  In  that case,

            damages are awarded.  See Mass. Gen. L. ch. 110A,   410(a).
                                  ___

                      C.   Interest
                           ________

                      1.   Post-insolvency interest.
                           ________________________

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

            on the consideration paid  for the security from the  date of

            payment of  that consideration.   The district  court awarded

            $200,485  statutory interest  to the  plaintiffs  against the

            FDIC,  Keezer,  Chaban  and  HHI.    That  amount  represents

            interest  from the  date the  plaintiffs made  each of  their

            respective  mortgage  payments until  February 11,  1994, the

            date the plaintiffs submitted their damages motion.  The FDIC

            contends  that  the  interest  award  against  it incorrectly

            includes interest  accruing following the  Bank's insolvency,

            which  occurred on May 31, 1991.   According to the FDIC, the

            ratable  distribution  rule  precludes  such  post-insolvency

            interest.12  We agree. 

                                
            ____________________

            12.  Because  Keezer, Chaban,  and HHI  can claim  no benefit
            from the  ratable distribution  rule under the  National Bank
            Act and the FIRREA, the following discussions of interest and
            attorneys'  fees apply only  to the extent  they were awarded
            against the FDIC.  

                                         -28-
                                          28

                      As  unsecured  creditors,   the  plaintiffs   share

            ratably with all other "unsecured creditors, and their claims

            bear  interest  to  the   same  date,  that  of  insolvency."

            Ticonic, 303 U.S.  at 412.13   There are  exceptions to  this
            _______

            rule, but where, as here, the  interest is part of the  claim

            itself, interest accruing after  the insolvency should not be

            awarded.  See  United States ex rel. White  v. Knox, 111 U.S.
                      ___  ___________________________     ____

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

            1361, 1372  (9th Cir.)("First  Empire I"), cert.  denied, 439
                                    _______________    _____  ______

            U.S. 919 (1978).14

                                
            ____________________

            13.  This rule bears similarity to the rule applicable in the
            bankruptcy  context  that   post-petition  interest  is   not
            available against an insolvent debtor.   See Debentureholders
                                                     ___ ________________
            Protective Comm.  of Continental  Inv. Corp.   v. Continental
            ____________________________________________      ___________
            Inv. Corp., 679 F.2d  264, 268 (1st Cir.), cert.  denied, 459
            __________                                 _____  ______
            U.S. 894 (1982).  This is not surprising.  Courts have looked
            to bankruptcy  law to  "decipher the  meaning of  the ratable
            dividend  requirement  of  section   194."    Texas  American
                                                          _______________
            Bankshares,  Inc. v. Clarke, 954 F.2d 329, 338 n.10 (5th Cir.
            _________________    ______
            1992).  

            14.  Some  courts  have  suggested  that  if  a  receiver  is
            unreasonable or  vexatious  in resisting  a claim,  or is  at
            fault in administering the trust, interest may be allowed for
            the delay.   See Fash v.  First Nat'l Bank of  Alva, Okl., 89
                         ___ ____     _______________________________
            F.2d  110,  112  (10th  Cir.   1937)  (citing  cases).    The
            plaintiffs have not shown  that these exceptions apply.   The
            case upon which the plaintiffs rely for the  proposition that
            post-insolvency  interest  is  available  here,  First Empire
                                                             ____________
            Bank-New  York v. FDIC, 634 F.2d 1222 (9th Cir. 1980) ("First
            ______________    ____                                  _____
            Empire  II"),   cert.  denied,   452  U.S.  906   (1981),  is
            __________      _____  ______
            inapposite.    That case  drew  a  distinction between  post-
            insolvency  interest as part of a claim against a bank (which
            would  not   be  allowed)  and  interest   accruing  from  an
            erroneously denied claim after the ratable amount was paid to
            other  creditors (which it  did allow).   Id.  at 1224.   The
                                                      ___
            plaintiffs, however, seek to include the interest as  part of
            the  original  claims against  the  Bank.    They argue  "the
            general  rule regarding  post-insolvency  interest  does  not

                                         -29-
                                          29

                      The  FDIC  does not  challenge  the  award of  pre-

            insolvency  interest, but  says  the district  court did  not

            distinguish  between the  portion  of the  award representing

            pre-insolvency  interest and  the portion  representing post-

            insolvency interest.   We prefer to allow  the district court

            to  determine the  appropriate amount  on remand  rather than

            attempt to do it here.

                      2.   Lopes and the Rileys.
                           ____________________

                      Lopes  and the Rileys  were erroneously  treated in

            the interest  calculation and that award  should be adjusted.

            The   $200,485  interest   award  to  the   other  plaintiffs

            apparently includes  $20,679.93 of  interest on the  mortgage

            payments Lopes  made for the condominium  unit and $28,240.81

            of  interest on the payments the Rileys made.  Those interest

            amounts were calculated according to the same method employed

            for  the plaintiffs who borrowed from the Bank:  the interest

            was calculated  from the  date each loan  installment payment

            was  made.  This method  was inappropriate for  Lopes and the

            Rileys  since,  with  respect  to  the  Bank  and  the  other

            defendants,  Lopes and the Rileys  parted with a  lump sum at

            the  time of the purchase.  Interest for Lopes and the Rileys

            ought to  have started accruing on the  entire purchase price

                                
            ____________________

            control where the interest  itself is part of  the underlying
            claim, as it is here."  That type of post-insolvency interest
            appears to  be  precisely the  type  of interest  that  First
                                                                    _____
            Empire II said should not be allowed.  Id.
            _________                              ___

                                         -30-
                                          30

            on the date the  cash was transferred to the  defendants, not

            on the  date the payments were made to the third party banks.

            Because  we  cannot  determine  that amount  on  the  present

            record,  on remand  the district  court should  calculate the

            appropriate  interest   to  be  awarded  to   Lopes  and  the

            Rileys.15

                      D.   Attorneys' Fees
                           _______________

                      1.   The award.
                           _________

                      The FDIC  argues that the award  of attorneys' fees

            under section  410(a) violates the  ratable distribution rule

            because the  claims for  attorneys' fees were  not "provable"

            within the  meaning of the  National Bank Act at  12 U.S.C.  

            194 and  case law construing that provision.   See Interfirst
                                                           ___ __________

            Bank-Abilene, N.A.  v. FDIC,  777 F.2d  1092, 1097  (5th Cir.
            __________________     ____

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

                      A  claim  is   provable  if  at  the  time  of  the

            insolvency  there is a present cause of action.  First Empire
                                                             ____________

                                
            ____________________

            15.  It is also not entirely clear whether the district court
            intended  to include  the interest  awards to  Lopes and  the
            Rileys in the order for rescissionary  damages.  The district
            court denied  Lopes and  the Rileys rescissionary  damages on
            the    410(a)(1) claim.   The court, however,  added the full
            $200,485 to  the rescissionary  damages award of  $654,949 to
            give a total award  of rescission of $855,434.   Although the
            district court could have  meant for Lopes and the  Rileys to
            benefit just from the interest component of that award, it is
            unclear whether that was  so intended, particularly since the
            interest is treated  as part and parcel  of the rescissionary
            damages award based  on    410(a)(1) and  the district  court
            appeared  to  deny  Lopes  and  the  Rileys  an  award  under
              410(a)(1).  The district  court should clarify this portion
            of the award on remand.  

                                         -31-
                                          31

            I, 572 F.2d  at 1368  (citing Pennsylvania Steel  Co. v.  New
            _                             _______________________     ___

            York City  Ry. Co., 198 F.  721, 738 (2d  Cir. 1912) ("Claims
            __________________

            which  at   the  commencement  of   [equitable  receivership]

            proceedings  furnish   a  present   cause   of  action   [are

            provable].")).   In this  case, the plaintiffs  were actively

            pursuing their claims against  the Bank at the time  the Bank

            became insolvent.  At  that time, there were claims  not only

            for rescission  but also  for attorneys' fees.   Accordingly,

            the claims for attorneys' fees were provable.

                      Relying on  Interfirst, 777 F.2d at  1097, the FDIC
                                  __________

            argues  that attorneys'  fees are  not provable  here because

            there  were  no  contractual provisions  for  attorneys' fees

            between  the plaintiffs and the Bank.  According to the FDIC,

            the  absence of  contractual contingency  fee provisions  for

            attorneys' fees  before the  insolvency shows that  no claims

            for attorneys' fees existed before the insolvency.  We reject

            the FDIC's argument that the  claims for attorneys' fees  did

            not exist prior to the insolvency because the contingency fee

            agreement between the plaintiffs  and their attorneys was not

            executed  until after the insolvency.  The FDIC is aware that

            the plaintiffs had an obligation  to pay their attorneys, and

            in fact did pay their attorneys substantial fees, during  the

            period  prior  to the  insolvency.    Plaintiffs' claims  for

                                         -32-
                                          32

            attorneys' fees certainly  did exist by  statute, and did  so

            well before the insolvency.16

                      The  FDIC  also  argues  that the  claims  are  not

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

            fees (only the general assets of  the estate to be shared  by

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

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

            the notion  of provability  is not  the same  as the rule  of

            ratable  distribution.  "Though  related concepts,  whether a

            claim  is   provable  under   section  194,  and   whether  a

            distribution  is 'ratable'  represent two  entirely different

            inquiries."  See  Citizens State Bank of Lometa  v. FDIC, 946
                         ___  _____________________________     ____

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

                      The existence  of a collateral fund,  while perhaps

            relevant  to  ratable   distribution,  is  not  relevant   to

            determining provability;  and  the FDIC's  argument that  the

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

            for purposes  of ratable distribution to be "provable" is not

            correct.   Id. (provability of  claims is not  equated to the
                       ___

            absolute, fixed, due-and-owing language  which applies to the

            concept of a "ratable distribution").  Even if the claims for

                                
            ____________________

            16.  To the extent Interfirst suggests  that statutory claims
                               __________
            for attorneys' fees should be treated differently than claims
            based upon contract,  see Interfirst,  777 F.2d  at 1097  n.2
                                  ___ __________
            (stating  that the  state law  providing for  attorneys' fees
            does  not create a claim  for purposes of  applying the First
                                                                    _____
            Empire I test), we disagree.
            ________

                                         -33-
                                          33

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

            claim is provable if  its "worth or amount can  be determined

            by recognized methods  of computation."  First  Empire I, 572
                                                     _______________

            F.2d  at 1369.    The  lodestar  approach to  calculation  of

            attorneys' fees is a recognized method of computation.

                      Nevertheless  the  attorneys'  fees award  requires

            modification.   The  rule of  ratable distribution  "requires

            that dividends be declared proportionately upon the amount of

            claims  as they stand on  the date of  insolvency."  Citizens
                                                                 ________

            State Bank,  946 F.2d at 415.   The amount of  the claim that
            __________

            has  accrued at  the  time of  insolvency  is the  basis  for

            apportionment  of   dividends.     See  Kennedy  v.   Boston-
                                               ___  _______       _______

            Continental Nat'l  Bank, 84  F.2d  592, 597  (1st Cir.  1936)
            _______________________

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

            established, it must be the amount due and owing at  the time

            of  the declaration  of insolvency,  as of  which time  it is

            entitled,  with  the  claims  of the  other  creditors,  to a

            ratable distribution of the  assets of the bank."); see  also
                                                                ___  ____

            White, 111  U.S. at  787  ("It was  clearly right  .  . .  to
            _____

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

            the  date  of  the  insolvency,  and  make  the  distribution

            accordingly.").   The availability of attorneys'  fees for an

            unsecured creditor depends upon whether the fees accrued pre-

            insolvency or  whether they accrued  post-insolvency.   Those

            incurred prior to the  insolvency are recoverable while those

                                         -34-
                                          34

            incurred afterwards are not.  Cf. Fash v. First Nat'l Bank of
                                          ___ ____    ___________________

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

            attorneys' fees not available).

                      We believe this situation  is not only analogous to

            requests  for interest  and  other costs  of collection,  see
                                                                      ___

            Interfirst,  777 F.2d  at  1097 (relying  on Ticonic  to deny
            __________                                   _______

            post-insolvency  attorneys'  fees);  Fash,  89  F.2d  at  112
                                                 ____

            (treating  interest  and  attorneys'  fees   under  the  same

            principle); cf.  also In  re Continental Airlines  Corp., 110
                        ___  ____ __________________________________

            B.R.  276, 279-80  (Bankr. S.D.  Tex. 1989)  (drawing analogy

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

            is  analogous   to  requests  for  attorneys'   fees  in  the

            bankruptcy   context.     Pre-petition  attorneys'   fees  of

            unsecured creditors against an insolvent debtor are generally

            allowed  under   the  bankruptcy  code  to   the  extent  the

            applicable   state   law  so   provides,   and  post-petition

            attorneys'  fees are generally not allowed.  See, e.g., In re
                                                         ___  ____  _____

            Southeast Banking  Corp., 188  B.R. 452, 462-64  (Bankr. S.D.
            ________________________

            Fla.  1995) (denying  under  the  bankruptcy  code  unsecured

            creditors'   attorneys'   fees  incurred   post-petition  but

            allowing attorneys'  fees incurred pre-petition); but  cf. In
                                                              ___  ___ __

            re  United Merchants and Mfrs.,  Inc., 674 F.2d  134, 137 (2d
            _____________________________________

            Cir.  1982) (unsecured creditor  can recover collection costs

            including counsel  fees where such costs  were a specifically

            bargained-for  term  of a  loan  contract).   Plaintiffs  are

                                         -35-
                                          35

            entitled to attorneys' fees  that had accrued as of  the date

            of the  insolvency but  are not entitled  to attorneys'  fees

            following  the  insolvency.17    Because  we  are  unable  to

            determine the amount of attorneys' fees accruing prior to the

            insolvency, we  leave that inquiry  to the district  court on

            remand.

                      2.  Fee enhancements.
                          ________________

                      The  plaintiffs  argue that  they were  entitled to

            either a contingency fee enhancement or a results enhancement

            to  the attorneys' fee award.  The district court's fee award

            is reviewed  for  an abuse  of  discretion, see  Brewster  v.
                                                        ___  ________

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

                      As  the  plaintiffs  concede, the  argument  for  a

            contingency  enhancement in a  statutory fee-shifting context

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

            based on state rather  than federal law, in the  aftermath of

            City of Burlington  v. Dague,  112 S. Ct.  2638, 2643  (1992)
            __________________     _____

            (generally  disapproving  of  contingency enhancements  under

            federal fee-shifting statutes).18   The Massachusetts  courts

            have  stated that where the  federal and state  law causes of

                                
            ____________________

            17.  The plaintiffs'  motion, filed after  oral argument, for
            attorneys' fees incurred on appeal is therefore denied.

            18.  This  is not  a  common  fund  situation.    Cf.  In  re
                                                              ___  ______
            Washington Public Power Supply System  Securities Litigation,
            ____________________________________________________________
            19  F.3d  1291,  1299-1301   (9th  Cir.  1993)  (stating  the
            rationale of Dague  did not  apply in common  fund cases  and
                         _____
            that district  court had the discretion  to allow contingency
            enhancements in common fund case).

                                         -36-
                                          36

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

            for  the  most part,  be  calculated  in  a similar  manner."

            Fontaine v.  Ebtec Corp., 613  N.E.2d 881, 891  (Mass. 1993).
            ________     ___________

            The state law  counterpart should not  be construed to  allow

            such an  enhancement absent direction from  the state courts.

            Plaintiffs have  cited no state cases  allowing a contingency

            enhancement for  a successful securities law  action based on

            the  fee-shifting  provision  of  section 410(a)(1)   and  we

            decline  to predict  the creation  of such  a state  law rule

            here.

                      A  results enhancement is also inappropriate.  Such

            an enhancement  is a "tiny"  exception to the  lodestar rule.

            See Lipsett v.  Blanco, 975  F.2d 934, 942  (1st Cir.  1992).
            ___ _______     ______

            The rates provided to the  attorneys in this case "adequately

            reflected the lawyers' superior skills and the superb results

            obtained."  Id.
                        ___

                      E.  Reconveyance to Defendants
                          __________________________

                      In  its damages  order the district  court provided

            that plaintiffs accepting the  rescission award reconvey  the

            units  to all  the defendants.   The  FDIC contends  that the

            district court  abused its  discretion in ordering  the units

            deeded  to all the defendants  rather than just  to the FDIC.

            The  plaintiffs, who  presumably  are indifferent  as to  who

            among  the  defendants  gets   the  units,  have  not  argued

            otherwise.    Where the  debts owed  on  the units  have been

                                         -37-
                                          37

            novated  in the  manner  prescribed here,  conveyance of  the

            units  solely to the Bank  might prejudice the  rights of the

            other  defendants.   The  district court  did  not abuse  its

            discretion on this matter.

                                    V.  Conclusion

                      For the  foregoing reasons, we affirm  the district
                                                     ______

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

            on  damages,  novation,  attorneys'  fees  and  interest,  as

            discussed above, for further proceedings consistent with this

            opinion.  It is so ordered.
                      ________________

                                         -38-
                                          38