Court Opinion

ID: 2964638
Source: CourtListenerOpinion
Date Created: 2015-09-21 21:28:42.023237+00
Date Added: 2024-06-11T15:02:01.117851
License: Public Domain

USCA1 Opinion

	

                            UNITED STATES COURT OF APPEALS
                                FOR THE FIRST CIRCUIT

                                 ____________________

        No. 96-1519

                             GARY A. DINCO, ETC., ET AL.,

                                Plaintiffs, Appellees,

                                          v.

                                DYLEX LIMITED, ET AL.,

                               Defendants, Appellants.

                                 ____________________

                     APPEAL FROM THE UNITED STATES DISTRICT COURT

                          FOR THE DISTRICT OF NEW HAMPSHIRE

                   [Hon. Shane Devine, Senior U.S. District Judge]
                                       __________________________

                                 ____________________

                                        Before

                                Boudin, Circuit Judge,
                                        _____________

                              Cyr, Senior Circuit Judge,
                                   ____________________

                              and Lynch, Circuit Judge.
                                         _____________

                                 ____________________

            Paul  S. Samson with  whom Mark  T. Vaughan,  Riemer & Braunstein,
            _______________            ________________   ___________________
        Steven J. Kantor and Doremus Associates were on briefs for appellants.
        ________________     __________________
            Randall F.  Cooper with whom Mary  E. Maloney and  Cooper, Deans &
            __________________           ________________      _______________
        Cargill, P.A. were on brief for appellees.
        _____________

                                 ____________________

                                    April 25, 1997
                                 ____________________

                 BOUDIN, Circuit Judge.  Gary Dinco, Felix Weingart, Jr.,
                         _____________

            and  a   holding  company   owned  by  Dinco   and  Weingart,

            (collectively,  "plaintiffs")  brought this  diversity action

            against   numerous  defendants  alleging  various  fraud  and

            securities-law  claims  in  connection  with  the plaintiffs'

            purchase of Manchester Manufacturing,  Inc. ("MMI").  After a

            lengthy trial, the jury found for the plaintiffs on their New

            Hampshire "Blue Sky" and common law fraud claims against five

            defendants who now appeal.  We vacate the judgment and remand

            for a new trial.

                                          I.

                 We begin  with a  description of the  background events,

            identifying disputed issues as  allegations.  On sufficiency-

            of-evidence claims,  the plaintiffs  are entitled to  have us

            assume that  the jury saw matters their  way.  Ansin v. River
                                                           _____    _____

            Oaks Furniture, Inc., 105 F.3d 745, 749 (1st Cir. 1997).  For
            ____________________

            other issues (e.g., whether an error was prejudicial), all of
                          ____

            the  evidence may be pertinent.  Davet v. Maccarone, 973 F.3d
                                             _____    _________

            22, 26 (1st Cir. 1992).

                 At  the  outset,  this   case  involved  four  corporate

            defendants:  Sears, Roebuck & Co., a U.S. corporation; Dylex,

            Ltd.  ("Dylex"),  a Canadian  corporation;  Dylex (Nederland)

            B.V.  ( Nederland ),  a  Netherlands  corporation  that is  a

            wholly  owned subsidiary  of Dylex;  and 293483  Ontario Ltd.

            ("Ontario"), a Canadian holding  company owned and managed by

                                         -2-
                                         -2-

            the individual defendants,  Kenneth Axelrod, Mac Gunner,  and

            Harold Levy.    Axelrod,  Gunner  and  Levy  also  served  as

            management employees  for a Canadian division  of Dylex known

            as Manchester Childrens Wear.

                 In  1974, Sears,  Dylex,  and Ontario  formed  MMI as  a

            Delaware  corporation based  in New  Hampshire, primarily  to

            make  children's clothing.  MMI's  common stock was issued to

            Dylex  (42%),   Ontario  (30%),  and  Sears   (28%).    Dylex

            transferred its  shares in MMI to  its subsidiary, Nederland,

            in  1978.  By agreement  among the shareholders,  sale of the

            stock was restricted and directorships were apportioned.  

                 The  six members  of  MMI's board  of  directors at  all

            pertinent  times  were  Axelrod   and  Gunner  (appointed  by

            Ontario), Wilfred  Posluns and  Irving Posluns  (appointed by

            Dylex), and Henry  Schubert, Raymond  Novotny, and  Novotny's

            successor, Melville  Hill (all  appointed by Sears).   Donald

            Williams, Dylex's  chief financial officer and  a director of

            Dylex and  managing director  of Nederland, attended  most of

            MMI's  board  meetings.    Axelrod and  Gunner  were  elected

            annually as MMI's president and treasurer.

                 At first, MMI successfully  made clothing, primarily for

            Sears.  During this early period, plaintiffs Dinco (hired  in

            1976)  and Weingart  (hired in  1977) served  respectively as

            MMI's plant  manager and comptroller.   However,  competition

            from  Asian manufacturers increased; around 1980, Sears began

                                         -3-
                                         -3-

            to purchase apparel from overseas  manufacturers and withdrew

            business from MMI. 

                 The loss of Sears' business threatened MMI's  existence.

            Dylex favored liquidation, but Sears did not want to lose its

            investment  in  the  company  and suggested  that  MMI's  New

            Hampshire facility be used  to store and distribute inventory

            imported by Sears.   MMI thus changed direction and  in 1982,

            Sears  and MMI entered a distribution contract.  At this time

            Dinco and Weingart continued to run MMI's daily operations.

                 MMI's  distribution  business with  Sears  grew steadily

            through 1986, when  it represented about 70 percent  of MMI's

            gross income.   In August  1986, Sears completed  an internal

            review  of its  warehousing  and  distribution business;  the

            report,  made  known  publicly  in  March  1987,  recommended

            downsizing these operations to reduce inventory costs.  Sears

            began selling its ownership  interests and, by December 1988,

            MMI  was the only remaining  provider in which  Sears held an

            ownership interest.

                 Around   September  1987,   the   three   Sears   buying

            departments  that used  MMI s facility  suggested that  Sears

            store its inventory  instead with a California  firm.  Sears'

            distribution  department  reported this  plan to  Novotny and

            Hill, who  allegedly informed MMI's  board of directors.   In

            September or October 1987, the board decided to sell MMI.  In

            October 1987, an  acquaintance of Levy sought to purchase MMI

                                         -4-
                                         -4-

            but  withdrew  when  Gunner told  him  that  Sears would  not

            provide  a requested  guarantee of  minimum sales  volume for

            three years.

                 In January 1988, Gunner, Axelrod and Levy informed Dinco

            and Weingart that MMI  was being offered for sale;  Dinco and

            Weingart were allegedly told that the reason for the sale was

            that  Sears  had decided  to  divest itself  of  ownership in

            affiliated factories, but that Sears' business with MMI would

            continue as usual.1  In February 1988, Dinco and Weingart met

            with Gunner, Levy, Hill,  and brokers hired by the  MMI board

            of directors to  sell MMI.  Hill stated that  Sears would not

            make any  written guarantees of  business, but said  that, in

            his experience,  "99.9% of the time when the ties are cut" in

            divestiture sales,  business with Sears remained  the same or

            increased.  

                 Dinco and  Weingart,  concerned that  MMI's  sale  might

            eliminate their  jobs, formed  a holding company  to purchase

            MMI.  At a meeting with Hill, Gunner, Levy and the brokers on

            May  14,  1988,  Dinco  and Weingart  expressed  interest  in

            purchasing MMI;  and  Hill  again  said  that  based  on  his

            experience, MMI's  business with  Sears would  be as  good or

                                
            ____________________

                 1Weingart testified that Levy had  made these statements
            but that  they were  "confirmed" by  Gunner and  Axelrod, who
            were  participating  by  conference  call.   Admittedly,  the
            testimony  is not perfectly clear and, at the time, Dinco and
            Weingart   were  being   addressed   as  employees,   not  as
            prospective buyers.

                                         -5-
                                         -5-

            better  after the sale.  On  May 19, Axelrod, Levy and Gunner

            allegedly said that  they would support the efforts  of Dinco

            and  Weingart to buy MMI  and confirmed that  "Sears would be

            there in the future" and business "would be as usual."

                 On June 3, 1988, Dinco  and Weingart offered to purchase

            all  of MMI's  business assets  and a  portion of  MMI's real

            estate for a total  of $2,050,000.  The offer  was contingent

            upon  a guarantee by Sears of $1.1  million in gross sales to

            MMI for one year after the sale.  The offer was rejected, and

            Dinco and Weingart were  told that MMI wanted to  sell all of

            its  real estate and that Sears would not provide any written

            guarantees  of minimum business volume.  A second and a third

            offer  by Dinco and Weingart, each linked to a minimum volume

            of  Sears  business,  were  rejected over  the  next  several

            months.

                 In  September 1988,  Dinco  and Weingart  made a  fourth

            offer  to  buy  MMI,  not contingent  on  any  minimum volume

            guarantees.   They  obtained financing from  several sources,

            some  of it secured in reliance upon Hill's statement that he

            believed  business  with  Sears  would  remain  unchanged  or

            improve.  Finally, in late  December 1988, the parties agreed

            that Dinco and Weingart would purchase MMI's real estate  and

            outstanding stock for a total of $2,045,000.  The deal closed

            that same month.

                                         -6-
                                         -6-

                 Following the sale of MMI to  Dinco and Weingart, Sears'

            business with MMI  continued to  decline.  A  year later,  on

            December  24, 1989,  Dinco  and Weingart  were informed  that

            their distribution contract with Sears was terminated.  Dinco

            and  Weingart were unable to meet their debt service, and one

            of the  mortgagees, the First New  Hampshire Bank, foreclosed

            on MMI's real estate in November 1990.

                 In  December  1991, Dinco,  Weingart  and  their holding

            company filed suit against Sears, Dylex,  Nederland, Ontario,

            Axelrod,  Gunner   and  Levy.2     In  addition   to  federal

            securities-law  claims, the  plaintiffs alleged  violation of

            the New Hampshire  Uniform Securities Act (also  known as the

            "Blue Sky"  law), N.H. Rev. Stat. Ann.    421-B:3, and common

            law claims  for fraud.   Prior to  trial, all of  the federal

            claims  were  dismissed   or  withdrawn.    Manchester   Mfg.
                                                        _________________

            Acquisitions,  Inc. v. Sears, Roebuck & Co., 802 F. Supp. 595
            ___________________    ____________________

            (D.N.H. 1992);  909 F. Supp. 47 (D.N.H. 1995).  On the eve of

            trial, Sears settled with the plaintiffs for $750,000.  

                 A 14-day jury trial began in October 1995.  In November,

            the jury returned verdicts in favor of the plaintiffs against

            Dylex,  Nederland,  Ontario,  Axelrod  and  Gunner,  but  not

            against  Levy.   Against the  remaining five  defendants, the

            jury awarded $2,385,000  on the statutory Blue  Sky claim and

                                
            ____________________

                 2Axelrod's  estate  was   the  named  defendant  because
            Axelrod died prior to  trial.  For simplicity, we  will refer
            to the defendant simply as "Axelrod."

                                         -7-
                                         -7-

            $523,500  on the common law  fraud claim.   The court awarded

            attorneys'  fees,  costs,  and  prejudgment  interest to  the

            plaintiffs.   The five defendants  held liable now  appeal on

            various grounds.

                                         -8-
                                         -8-

                                         II.

                 We  begin with the legal elements of the claims at issue

            and with  attacks on the district  court's jury instructions,

            for it is hard to discuss sufficiency of the evidence without

            legal  benchmarks.  And while  there is not  much doubt about

            most  of the elements of common law fraud and New Hampshire's

            Blue  Sky  law--we   describe  both  briefly--the   vicarious

            liability  rules  attending  such  claims are  very  much  in

            dispute.

                 Pertinently, under  New Hampshire law,  common law fraud

            requires  that  the  defendant  fraudulently  misrepresent  a

            material fact  and that  the plaintiff justifiably  rely upon

            the misrepresentation.  Gray v. First NH Banks, 640 A.2d 276,
                                    ____    ______________

            279 (N.H. 1994).  A  Blue Sky claim is made out  where, inter
                                                                    _____

            alia, the defendant, "in connection with the offer,  sale, or
            ____

            purchase of  any security,  directly or indirectly"  makes an

            untrue  statement  of  material  fact  or  omits to  state  a

            material fact "necessary . . . to make the statements made  .

            . . not misleading."  N.H. Rev. Stat. Ann.   421-B:3.3

                 The next link in  the chain is vicarious liability.   In

            this case Sears had settled for itself and its employee Hill,

            who had made the most blatantly misleading statements.  Thus,

                                
            ____________________

                 3New  Hampshire's   statute   is  a   version   (largely
            unmodified) of  the Uniform  Securities Act, also  adopted in
            some form  by thirty-seven other states.   1 Blue Sky L. Rep.
            (CCH)    5500, at 1503  (1995).  Pertinent  provisions of the
            statute are reprinted in an appendix to this opinion.

                                         -9-
                                         -9-

            to reach the  remaining corporate and individual  defendants,

            the plaintiffs relied heavily, although not exclusively, upon

            common-law theories that make one  person liable for the acts

            of another:  agency, partnership, and civil conspiracy.

                 The district  court obliged, instructing the  jury as to

            each of these three theories and providing definitions.   The

            three theories were actually  four, because under the heading

            of  agency the  district  court instructed  separately as  to

            apparent authority and as  to liability for acts done  within

            the scope of employment.   The plaintiffs' counsel  began his

            closing  argument  by  laying  stress on  such  theories  and

            returned to them throughout in discussing the evidence.

                 The  defendants'  first  argument   on  appeal  is  that

            "vicarious liability"  is not a permissible  theory under the

            New  Hampshire Blue Sky statute  in light of  Central Bank of
                                                          _______________

            Denver, N.A. v. First Interstate Bank of Denver, N.A., 114 S.
            ____________    _____________________________________

            Ct.  1439  (1994).    The  phrase  "vicarious  liability"  is

            something  of  a trap  where  used  promiscuously to  embrace

            markedly different theories of third-party liability, such as

            agency,  partnership  and  civil conspiracy.    Central  Bank
                                                            _____________

            involved none of these  concepts, but rather rejected "aiding

            and abetting" liability under section 10(b) of the Securities

            and Exchange Act of 1934, 15 U.S.C.   78j.

                 Although New Hampshire's Blue Sky law is to be construed

            in  conjunction with  "the related federal  regulation," N.H.

                                         -10-
                                         -10-

            Rev. Stat. Ann.    421-B:32,  the notion  that all  vicarious

            liability is barred under the state statute is fanciful.  The

            statute in detail specifies that third-party liability may be

            based   upon  "control,"  "aiding,"  partnership,  and  other

            particular grounds.  Id.   421-B:25(III).   At the same time,
                                 ___

            reasonable  lack  of  knowledge  is  an  affirmative  defense

            against  these  forms of  vicarious  liability.   Id.    421-
                                                              ___

            B:25(IV).  Curiously, the district court made no reference to

            these statutory concepts in its instructions.

                 Thus,  the defendants'  general  proposition  is  wrong:

            vicarious liability--of several types--is provided for by the

            statute  itself.    What   is  more,  the  defendants'  broad

            assertion  was not  preserved  by objection  after the  judge

            instructed the jury,  as Fed. R. Civ. P. 51  requires, and is

            therefore  lost absent plain error.   The defendants say that

            they raised the  objection earlier in motion papers, but that

            is not enough, see Transamerica Premier Ins. Co. v. Ober, 107
                           ___ _____________________________    ____

            F.3d  925, 933  (1st Cir.  1997), and the  transcript refutes

            their claim that they renewed their broad objection after the

            jury was instructed.

                 If we could rescue this verdict by resort to Rule 51, we

            would  readily do so:   it is counsel's  obligation to comply

            strictly  with Rule 51, especially  so in a  long and complex

            civil proceeding.  Yet,  for other reasons this case  must go

            back for a new trial, and it is unfair to  leave the district

                                         -11-
                                         -11-

            court in the  dark on the  true issue--namely, whether  under

            the Blue Sky statute,  one or more of the  traditional common

            law  theories  of  third-party   liability  can  be  used  to

            supplement  the  statutory  vicarious   liability  provision.

            Unfortunately, this is an  exceedingly difficult question  to

            which no certain answer can be returned.

                 In construing  the Securities  Exchange Act,  this court

            concluded  that  the  statutory  section  imposing  vicarious

            liability (section  20, 15 U.S.C.   78t(a)) did not foreclose

            alternative  common-law avenues.    In re  Atlantic Financial
                                                _____  __________________

            Management,  Inc., 784  F.2d 29,  35  (1st Cir.  1986), cert.
            _________________                                       _____

            denied,  481  U.S. 1072  (1987).   But  in Central  Bank, the
            ______                                     _____________

            Supreme  Court more  recently said  that Congress'  choice in

            section 20 "to impose some  forms of secondary liability, but

            not others, indicates a deliberate  congressional choice with

            which the courts should  not interfere," 114 S. Ct.  at 1452,

            casting  some doubt on Atlantic  Financial.  See  id. at 1460
                                   ___________________   ___  ___

            n.12 (Stevens, J., dissenting).  But see Seolas v. Bilzerian,
                                             _______ ______    _________

            951 F. Supp. 978, 984 (D. Utah 1997).

                 In  any event, federal case law is only suggestive as to

            how  the  state statute  should  be  construed, and  the  New

            Hampshire  statute  differs from  federal securities  law by,

            among other  differences, providing that it  "does not create

            any cause of  action not  specified in this  section."   N.H.

            Rev. Stat. Ann.   421-B:25(XI).  This language, together with

                                         -12-
                                         -12-

            Central  Bank's  general  reasoning,  suggests that  the  New
            _____________

            Hampshire  statute has developed  a self-contained regime for

            third-party liability, displacing common law theories.  Other

            courts, construing state  versions of the  Uniform Securities

            Act akin  to New  Hampshire's statute,  appear to  have taken

            this view.  Connecticut Nat'l Bank v. Giacomi, 659 A.2d 1166,
                        ______________________    _______

            1176-77  (Conn. 1995); Atlanta Skin  & Cancer Clinic, P.C. v.
                                   ___________________________________

            Hallmark Gen.  Partners, Inc.,  463 S.E.2d 600,  604-05 (S.C.
            _____________________________

            1995).   

                 The  district  court  on  retrial  is free  to  reach  a

            different  conclusion.  Obviously it  should do so  if in the

            meantime  the New  Hampshire  Supreme Court  so instructs  in

            another case; and it may do so if it is persuaded differently

            by  the  parties  on  remand, since  the  parties  here  have

            scarcely addressed the  pertinent statutory provisions.   But

            defendants'  past failure  to comply  with Rule  51  does not

            justify  perpetuating possible  error  where a  new trial  is

            necessary in any event.

                 This  brings  us  to  a  set   of  objections  that  the

            defendants clearly did renew  after the jury instructions had

            been given:   that the evidence did  not support instructions

            on either  a partnership  or  civil conspiracy  theory.   The

            defendants do  not dispute that  such bases of  liability are

            legally  available for common law fraud,  and (as noted) they

            have forfeited the objection on this go-around as to the Blue

                                         -13-
                                         -13-

            Sky claim.  But the issue here is different:   the defendants

            objected that the instructions were improper in this case for
                                                         ____________

            lack of evidence as to partnership and conspiracy.

                 Normally,   it   is   error--although  not   necessarily

            prejudicial error--to  instruct on  an independent theory  of

            liability  where  the  evidence  is inadequate  to  permit  a

            reasonable jury to find  the facts necessary to make  out the

            theory.  E.g., Sexton  v. Gulf Oil Corp.,  809 F.2d 167,  169
                     ____  ______     ______________

            (1st Cir. 1987).  Here, over explicit objection, the district

            court  gave substantial  and  independent instructions  as to

            partnership  and  civil  conspiracy,  placing  these separate

            bases of vicarious liability squarely before the jury.

                 It  is  a closer  question  whether  this issue,  timely

            raised in  the district court, has  been adequately preserved

            on  appeal, for the defendants challenge  the evidence but do

            not focus upon the instructions.  We think that, just barely,

            the  propriety  of  the   instructions  is  impugned  by  the

            defendants' detailed  argument that  the  evidence failed  to

            support  vicarious  liability.    This  attack  in  turn  has

            provoked a  response from  plaintiffs that allows  us to  see

            what record evidence they think supports such liability.

                 We conclude that  the partnership instruction cannot  be

            justified in this case  and that its inclusion may  well have

            misled the  jury.  What the district court said on this issue

            is as follows:

                                         -14-
                                         -14-

                           The  plaintiffs  here  also  contend
                      that the nature of the relationship among
                      the  various  defendants  was  that  of a
                      partnership,  and in that respect you are
                      instructed that when  two or more persons
                      join in  a  business enterprise  or  some
                      activity with a  common purpose and  each
                      has a right  to control  or manage,  then
                      each is liable for any legal fault of the
                      others  committed within the scope of the
                      enterprise.

                         Every  partner  is  an  agent  of  the
                      partnership  for  the  purposes   of  the
                      business,  and the  act of  every partner
                      including    the   execution    and   the
                      partnership  name  of  any instrument  or
                      apparently  carrying on in  the usual way
                      the  business of the partnership of which
                      he  or   she  is   a  member   binds  the
                      partnership unless the partner  so acting
                      has in  fact no authority to  act for the
                      partnership in the particular  manner and
                      the  person with whom  he is  dealing has
                      knowledge  of the  fact  that  he has  no
                      authority.

                 The  difficulty  is  that there  was  no  evidence of  a

            partnership among the defendants.  There are corporations and

            their officers, employees and  agents--but nowhere is there a

            partnership visible  on the  defense  side.   We are  talking

            here, it should  be remembered, not about  a colloquial usage

            of the  term "partner" but  about a  legal relationship  that
                                                 __________________

            broadly   imposes  liability  without  fault  upon  otherwise

            innocent parties.   H. Reuschlein  & W. Gregory,  The Law  of
                                                              ___________

            Agency and Partnership   203, at 306-10 (2d ed. 1990).
            ______________________

                 The individual  defendants did not even  arguably fit in

            this  discrete  business  category.     Perhaps  the  nearest

            possibility is to call the venture among the corporate owners

                                         -15-
                                         -15-

            of  MMI  a partnership;  but shareholders  of a  closely held

            company are not ipso facto partners, nor can they normally be
                            __________

            treated as  partners simply because  they join to  sell their

            shares to a single  purchaser.  Otherwise, we would  undo the

            ordinary  protections  of  corporate   form  in  many   close

            corporations.  Cf. Terren v. Butler, 597 A.2d 69, 72-73 (N.H.
                           ___ ______    ______

            1991).

                 The partner-liability instruction given here effectively

            invited the jury to find a partnership somewhere in this case

            based on  a brief but broad  definition ("business enterprise

            or  some activity with a common purpose" plus joint control).

            A jury,  uncertain about the  proof on conspiracy  or agency,

            could easily have  thought that the  mere association of  the

            defendants  in  seeking to  sell  MMI  made each  liable  for

            whatever the others did in connection with the sale.  That is

            not the law.

                 Frequently, in civil jury cases with multiple  theories,

            judges use  special verdicts  or  interrogatories to  isolate

            potential  problems.   See Fed.  R. Civ.  P. 49.    Here, for
                                   ___

            example, the district court could have asked the jury to say,

            as to each defendant  and each of the two  claims, whether it

            based  liability on direct participation, agency, partnership

            or  conspiracy.    But  the court  asked  only  for  separate

            verdicts  against  each  defendant  on  the  common  law  and

            statutory  claims.   Thus,  on  each  count, liability  could

                                         -16-
                                         -16-

            easily   have  been   based  on   partnership--the  vicarious

            liability  theory,  at  least  as defined,  with  the  fewest

            strings attached.

                 Assessing the  risk of  prejudice  from an  uncalled-for

            instruction  is  no  easy  matter.    If  the  evidence  were

            overwhelming on alternative theories,  we might well treat as

            harmless an error  whose inherent tendency is to cure itself.

            Jerlyn Yacht Sales, Inc. v.  Wayne R. Roman Yacht  Brokerage,
            ________________________     _______________________________

            950 F.2d  60, 69  (1st Cir.  1991).  But  the breadth  of the

            partnership instruction dampened this tendency; and, as  will

            become  clear, vicarious  liability on  other theories  is at

            best a close call.

                 We  are  also doubtful  whether  there  was an  adequate

            evidentiary  basis  for  instructing  on   civil  conspiracy,

            although  this  is  a   closer  question.    To  oversimplify

            slightly, the civil conspiracy charge required proof that two

            or more of the individuals on the  defense side had agreed to

            the use of lies  or culpable omissions about MMI's  post-sale

            prospects.   Aetna  Cas. Sur.  Co. v.  P&B Autobody,  43 F.3d
                         _____________________     ____________

            1546,  1564 (1st Cir. 1994); Ferguson v. Omnimedia, Inc., 469
                                         ________    _______________

            F.2d  194, 197 (1st Cir.  1972).4  The  companies, of course,

                                
            ____________________

                 4Civil  conspiracy  can  be  used  to  impose  vicarious
            liability in a fraud case.  E.g., Aetna,  43 F.3d at 1564-65.
                                        ____  _____
            As already noted, it is not clear that it is  available under
            the Blue Sky statute, although the "aiding" provision of that
            statute may create an overlapping basis for liability.

                                         -17-
                                         -17-

            could also  be conspirators,  but only if  individuals acting

            for the companies made such agreements.

                 No direct proof of such an agreement was offered, but in

            conspiracy cases proof by inference is common, and such proof

            may suggest  either that there  was a formal  (but concealed)

            agreement  or that  there  was a  working understanding  that

            amounted  to an  implicit agreement.   See  United  States v.
                                                   ___  ______________

            Moran,  984  F.2d 1299,  1303 (1st  Cir.  1993).   In certain
            _____

            situations,   circumstantial  proof  to   this  end   may  be

            compelling:   if a gang  of drug dealers  were caught in  the

            middle of a  sale, it would be  a very small step  to infer a

            prior agreement.

                 Here, however,  the central activity--the sale  of MMI--

            was   entirely  lawful   and  of   necessity  involved   some

            consultation    among    the    owners.        The    limited

            misrepresentations  alleged to  have occurred  were sporadic,

            oral comments  of a  few individuals (Hill,  Gunner, Axelrod,

            and Levy).  Each one had independent reasons to make the sale

            succeed and, assuming the plaintiffs' version of events, each

            made  varying  statements  that  a  jury  could  find  to  be

            culpable.  To infer an agreement to lie or conceal is another
                                   _________

            matter entirely.

                 We  need not resolve the issue since a retrial is needed

            on account  of the  partnership instruction.   The conspiracy

            issue  has  not  been  thoroughly briefed,  the  evidence  on

                                         -18-
                                         -18-

            retrial may vary, and courts have  sometimes been generous in

            allowing  the jury  to  infer agreement  even where  criminal

            conspiracy  is not involved.   If the trial  court does allow

            the conspiracy charge to reach the jury, it might wish to ask

            a  separate question  on  this issue,  and  perhaps on  other

            theories  of primary and vicarious liability as well.  See 9A
                                                                   ___

            C. Wright & A. Miller, Federal Practice and Procedure:  Civil
                                   ______________________________________

            2d   2505, at 166-67 (1995).
            __

                                         III.

                 Apart from their new  trial claims, the defendants argue

            that  they are  entitled  to outright  dismissal because  the

            plaintiffs failed to produce  sufficient evidence to  sustain

            any  valid  theory of  liability.   This  claim  was properly
            ___

            preserved in the  district court  and we review  de novo  the
                                                             _______

            denial of motions  for judgment as  a matter of law.   Ansin,
                                                                   _____

            105 F.3d  at 753.   We reverse  a denial only  if "reasonable

            persons could not have reached  the conclusion that the  jury

            embraced."  Sanchez v. Puerto Rico Oil Co., 37 F.3d 712,  716
                        _______    ___________________

            (1st Cir. 1994).

                 On this record, the  jury could have concluded--although

            just barely--that  Gunner and  Axelrod were liable  for their

            own misrepresentations.  As already noted, Weingart testified

            that, during  a conference call  in January 1988,  Gunner and

            Axelrod "confirmed" that the  sale of MMI "had nothing  to do

            with  the Sears  contract business"  and that  MMI's business

                                         -19-
                                         -19-

            with Sears would continue as usual.  And, at a meeting on May

            19, 1988, Gunner and Axelrod  said that "as far as  they knew

            Sears would be there in the future."

                 It  was Hill  who made  the more  specific misstatements

            already described,  saying several  times in the  presence of

            Gunner  and perhaps  Axelrod that  MMI's business  with Sears

            would   almost  certainly  continue  unchanged  or  increase.

            Absent conspiracy,  the latter  two are perhaps  not directly

            accountable for  the former's misstatements.   But it  may be

            that the milder  statements of Axelrod  and Gunner were  made

            even  more misleading  in the  context of  Hill's statements.

            Axelrod did warn  the plaintiffs against buying  MMI, but the

            jury could have regarded a generic warning as insufficient to

            overcome misrepresentations.

                 Since  Sears  provided  a  large   proportion  of  MMI's

            business, these statements were  plainly material.  And there

            was evidence,  albeit disputable, that  could have  persuaded

            the jury that Gunner  and Axelrod knew that these  statements

            were false or  misleading at  the time they  were made,  thus

            satisfying the scienter element for common law fraud.  As for

            the Blue Sky law,  it appears likely that mere  negligence is

            enough.  See Sprangers v. Interactive Tech., Inc., 394 N.W.2d
                     ___ _________    _______________________

            498, 503 (Minn. Ct. App. 1986).

                 The evidence  of knowledge was indirect,  resting on two

            linked  premises: that the Sears  members of MMI's board knew

                                         -20-
                                         -20-

            about  the probable  withdrawal of  Sears' business  and that

            they conveyed  this information to the  full board, including

            Gunner  and  Axelrod.    Susann Mayo,  a  Sears  distribution

            manager,  gave  deposition  testimony  on  both  points;  and

            Novotny  testified that  in  February 1987,  he  was told  by

            another  Sears employee that "nobody in  his right mind would

            buy [MMI] without  some sort of guarantee that Sears business

            will continue," and also testified about his general practice

            of providing information to MMI's board of directors.

                 The  common law  claim  required "clear  and  convincing

            proof"   of   fraud,  reflecting   at   least  a   "conscious

            indifference to [the] truth."   Brochu v. Ortho Pharm. Corp.,
                                            ______    __________________

            642 F.2d 652, 662 (1st  Cir. 1981).  But if  Mayo's testimony

            were credited  and indirectly confirmed by  Novotny, the jury

            could find clear and convincing proof that Gunner and Axelrod

            knew that Sears business  with MMI was likely to  decline and

            that the  sale of MMI was prompted by this concern.  The case

            is  not overwhelming, but was  sufficient to get  to the jury

            based on  actual knowledge.  We  reject, however, plaintiffs'

            attempt  to  impute all  of  Sears'  knowledge  to the  other

            defendants on a partnership theory.

                 The final fact  at issue is  reasonable reliance by  the

            buyers, a  familiar element for  the common law  claim, Gray,
                                                                    ____

            640 A.2d  at 279, and perhaps,  but less clearly  so, for the

            Blue Sky claim.   Compare Gohler, IRA v. Wood,  919 P.2d 561,
                              _______ ___________    ____

                                         -21-
                                         -21-

            566  (Utah 1996)  (reliance  not required  under the  Uniform

            Securities  Act).   There  is no  rigid  rule on  what  makes

            reliance  reasonable;   courts,  including  this   one,  have

            resorted to  checklists of factors.  Kennedy  v. Josephthal &
                                                 _______     ____________

            Co., 814 F.2d 798, 804 (1st Cir. 1987).
            ___

                 Here,  it  is  a  close question  whether  reliance  was

            reasonable.   Dinco and Weingart knew a good deal about MMI's

            business and  also  that one  of  the Sears  departments  was

            discontinuing business  with MMI.  Their  repeated efforts to

            secure a guarantee of continued Sears business show that they

            were  well aware of the  danger.  There  was testimony, which

            the jury may not have credited, that Novotny warned them that

            MMI could not  rely upon continued  business with Sears,  and

            Axelrod also gave a more general warning.

                 At the same time, the jury could have found that Axelrod

            and Gunner knew  that continued Sears  business was not  only

            uncertain  but  unlikely.   And,  taking  the disputed  facts

            favorably  to  the  verdict,  both  defendants  had  specific

            information as  to why it was  unlikely--information that was

            not available to the buyers, whatever their general knowledge

            about MMI's business.  The  jury was thus permitted, although

            certainly not required, to find reasonable reliance.

                 This brings  us to  the responsibility of  the corporate

            defendants,  perhaps the  most difficult  issue in  the case.

            Partly this  is so because the  law on this issue  is complex

                                         -22-
                                         -22-

            (and differs as between the common law fraud and the Blue Sky

            claims) and  partly  because of  the entangled  relationships

            between the individuals and the companies.  Let us start with

            a few basics,  beginning with ordinary  rules of agency  that

            unquestionably apply to the common law fraud claim.

                 A principal  is liable  for actually  authorized wrongs,

            but  there was no proof that any of the charged misstatements

            was directly authorized by anyone.  Indeed, in his charge the

            district  court  instead  emphasized apparent  authority  and

            respondeat superior liability; as to the latter, he said that

            a company is liable for acts  of an employee or agent "acting

            within the scope of  his employment."  The defendants  do not

            dispute  that the  agency rules were  correctly stated.   See
                                                                      ___

            Atlantic Financial, 784 F.2d at 31-32.
            __________________

                 Given these rules, we  think that the evidence permitted

            the jury to impose  liability both on Ontario and  upon Dylex

            and  its  Nederland subsidiary.5    Gunner  and Axelrod  both

            worked for Dylex and  were themselves the owners (with  Levy)

            and chief officers of  Ontario.  Even if  Hill were taken  as

            primarily  representing Sears,  Axelrod and  Gunner (together

                                
            ____________________

                 5As  noted  earlier,  Dylex owned  Nederland,  Nederland
            owned Dylex's MMI stock, and Gunner and Axelrod worked for an
            unincorporated division  of Dylex.   Perhaps because  of this
            intertwining,  the defendants'  brief has  made no  effort to
            distinguish the respective roles  of Dylex and Nederland, and
            we pass over this possibility.

                                         -23-
                                         -23-

            with  Levy) were the only direct links between the buyers and

            the corporate defendants other than Sears.

                 Indeed,  both Axelrod  and Gunner  received compensation

            only from Dylex, even though they also served as officers and

            directors of MMI;  and their  May 19, 1988  meeting with  the

            plaintiffs about  the prospective sale, during  which Axelrod

            and Gunner made misleading  statements, took place at Dylex's

            offices in Montreal.  In the context of the sale, Axelrod and

            Gunner  could  be treated  without  difficulty  as agents  or

            apparent agents both  of Dylex  and Ontario  for purposes  of

            making  the sale.   Cf.   Restatement  (Second) of  Agency   
                                ___   ________________________________

            14L(1), 226 (1958).

                 Turning  to the  Blue  Sky claim,  that statute  imposes

            vicarious  liability   on  every  person  who   "directly  or

            indirectly controls a person" who has direct liability.  N.H.

            Rev.  Stat. Ann.   421-B:25(III).   And, as noted, Gunner and

            Axelrod  were employees of  Dylex and owners  and officers of

            Ontario.  This is enough to  make a prima facie case that the
                                                ___________

            corporate defendants were "controlling  persons."  See SEC v.
                                                               ___ ___

            First Sec. Co. of  Chicago, 463 F.2d 981, 987-88  (7th Cir.),
            __________________________

            cert. denied, 409 U.S. 880 (1972).
            ____________

                 A controlling  person may defeat liability  if it proves

            that it did not  know, and despite reasonable care  could not

            have known, the true facts.  Id.   421-B:25(IV).  But Ontario
                                         ___

            could hardly  make such  a showing  since Gunner and  Axelrod

                                         -24-
                                         -24-

            were  its chief officers; and,  as Axelrod was  a director of

            Dylex, his knowledge about  Sears' prospects could be imputed

            to Dylex.   See  Sutton Mut.  Ins. Co.  v. Notre  Dame Arena,
                        ___  _____________________     __________________

            Inc., 237 A.2d 676,  679 (N.H. 1968).  Nederland  alone might
            ____

            dispute controlling  person liability, but has  not sought to

            distinguish itself from Dylex.  Thus, the defendants  are not

            entitled to judgment as a matter of law on the  common law or

            Blue Sky claims.

                                         -25-
                                         -25-

                                         IV.

                 The defendants have made  numerous claims of trial error

            under five  additional heads.  The  claims relate, primarily,

            to plaintiffs' expert testimony on corporate practice, to the

            admission or  exclusion of specific documents and statements,

            and to damages.   Most of the issues do not  involve abstract

            legal  rulings but  judgments about  the permissible  uses of

            certain  evidence,  the soundness  of  premises  used by  the

            experts,  and how  damage  issues  in  this  case  should  be

            structured for the jury.

                 Many of  the issues may  not arise  in the same  form on

            retrial  or the trial judge  may treat them  differently.  We

            are unwilling to go very far in tying the hands  of the trial

            judge  on matters  where on-the-spot  judgments are  crucial,

            discretion is  substantial, and more than  one alternative is

            often permitted.   But this is a case that patently should be

            settled, as we told the parties at  oral argument, and it may

            assist the  parties for  us to  make  three general  comments

            about certain of the defendants' claims of error.

                 First,  the defendants  sought  to  exclude as  hearsay-

            within-hearsay Sears documents that  cast a pessimistic light

            on Sears'  internal plans  for  MMI's future.   The  district

            court  disagreed and admitted  the documents alternatively as

            admissions   by  an   agent   or  servant,   Fed.  R.   Evid.

            801(d)(2)(D), or  as  admissions  by  a  co-conspirator,  id.
                                                                      ___

                                         -26-
                                         -26-

            801(d)(2)(E).  Proof  of conspiracy was  meager, and we  have

            even more difficulty seeing  how in preparing these documents

            the Sears authors (such as Mayo and Novotny) served as agents

            or employees of any of the remaining non-Sears defendants.

                 Nonetheless, the  defendants  ought to  appreciate  that

            many of the Sears  documents might be admissible to  show the

            state  of  knowledge of  Sears'  representatives  on the  MMI

            board.   To  the extent  that other  evidence indicates  that

            Sears'  plans were  conveyed to  MMI's other  directors, this

            could  affect the knowledge of  other defendants.   We do not

            purport  to rule on  particular documents but  think that the

            defendants should be  aware of this logic  in assessing their

            position.

                 Second, the  defendants complain  that Mark  McKinsey, a

            plaintiffs'  expert  who  testified  on  corporate  practice,

            should  not have been allowed  to testify and,  in any event,

            went  too far  in telling  the jury  how to  decide contested

            issues.  As to  the expert's qualifications, close cases  are

            largely  for  the  district  court.   Espeaignnette  v.  Gene
                                                  _____________      ____

            Tierney Co.,  43 F.3d 1, 11  (1st Cir. 1994).   Given what we
            ___________

            currently  know  of  defendants'   objections,  we  would  be

            unlikely to  reverse the  district  court if  it deemed  this

            expert qualified and left weight to the jury.

                 But we have little  doubt that a tighter rein  should be

            kept on this expert if another trial proves necessary.  It is

                                         -27-
                                         -27-

            one thing to testify about ordinary corporate practice; it is

            quite another  for the expert to tell the jury at length that

            the  plaintiffs reasonably  relied  upon specific  statements

            made to them.  Yes, the bar on "ultimate issue"  opinions has

            been abolished in civil cases, Fed. R. Evid. 704(a); but that

            is  not a carte blanche for experts to substitute their views
                      _____________

            for matters  well within  the ken of  the jury.   See  United
                                                              ___  ______

            States v. Duncan, 42 F.3d 97, 101 (2d Cir. 1994).
            ______    ______

                 Third, the jury awarded plaintiffs $2,908,500, almost $1

            million more than the price that they paid for MMI; and their

            expert--who sponsored an even larger figure--explicitly based

            his calculations  of lost profits  by projecting 20  years of

            continued Sears business for  MMI.  Even under a  "benefit of

            the  bargain" theory, Wilson v. Came, 366 A.2d 474, 475 (N.H.
                                  ______    ____

            1976), it seems to us that no purchaser could reasonably take

            the assurances provided  by any defendant as a guarantee that

            Sears business would continue unabated for 20 years.

                 There is no need for us to address another concern about

            this damage award--importantly, the risk that double recovery

            may  have  occurred; this  is a  matter  that can  be guarded

            against  on  retrial  through  the use  of  instructions  and

            verdict  forms, now  that  the  problem  is fully  in  focus.

            Whether any award based on future profits is too speculative,
                    ___

            cf. Hydraform Prod. Corp. v. American Steel & Aluminum Corp.,
            ___ _____________________    _______________________________

            498 A.2d 339, 345 (N.H. 1985), is an issue we do not decide.

                                         -28-
                                         -28-

                 To conclude, the plaintiffs have a potential, but hardly

            certain, case against the defendants.  The defendants have to

            consider  the   Sears  documents  and   jury  sympathy;   the

            plaintiffs, the risk of recovering nothing and some limits on

            just how ambitious a  recovery could be sustained.   Now that

            the appeal is resolved  and both sides face the expense  of a

            retrial,   counsel  owe   it  to   their  clients   to  renew

            discussions.

                 The judgment is vacated  and the case is remanded  for a
                                 _______                  ________

            new trial consistent with this decision.

                                         -29-
                                         -29-

                                       APPENDIX
                                       APPENDIX

                 This  appendix  contains  pertinent  provisions  of  the
            Uniform  Securities Act,  N.H. Rev.  Stat. Ann.    421-B:1 et
                                                                       __
            seq.  
            ____
                                  
                   421-B:3. Sales and Purchases
                   421-B:3. Sales and Purchases

                 It is  unlawful for any  person, in connection  with the
            offer,  sale,  or  purchase  of  any  security,  directly  or
            indirectly:   

                 I. To employ any device, scheme, or artifice to defraud;

                 II. To make any  untrue statement of a material  fact or
            to omit to  state a material fact necessary in  order to make
            the statements made, in the light of  the circumstances under
            which they are made, not misleading; or   

                 III. To  engage  in  any  act, practice,  or  course  of
            business which operates or would operate as a fraud or deceit
            upon any person.

                   421-B:2. Definitions
                   421-B:2. Definitions

                              *     *     *     *     *

                 XVI.   "Person"   means   an  individual,   corporation,
            partnership,  association, joint  stock company,  trust where
            the  interests  of  the  beneficiaries  are  evidenced  by  a
            security,   unincorporated    organization,   a   government,
            political subdivision of a government, or any other entity.

                              *     *     *     *     *

                   421-B:25. Civil Liabilities
                   421-B:25. Civil Liabilities

                              *     *     *     *     *

                 II. Any  person who  violates RSA 421-B:3  in connection
            with  the purchase or sale of any security shall be liable to
            any  person damaged by the violation of that section who sold
            such security to him or to whom he sold such security . . . .
            Damages in an action pursuant to this paragraph shall include
            the actual damages  sustained plus interest from  the date of
            payment or sale, costs, and reasonable attorney's fees.   

                 III. Every person who  directly or indirectly controls a
            person  liable  under  paragraph  I  or  II,  every  partner,
            principal  executive  officer, or  director  of  such person,
            every  person  occupying a  similar  status  or performing  a
            similar   function,  every  employee   of  such   person  who

            materially aids in the  act or  transaction  constituting the
            violation, and  every broker-dealer  or agent who  materially
            aids in the acts  or transactions constituting the violation,
            are  also liable jointly and  severally with and  to the same
            extent as such person.  There  is contribution as in cases of
            contract among the several persons so liable.   

                 IV. No person shall be liable under paragraphs I and III
            who shall sustain the burden of  proof that he did not  know,
            and  in the exercise of reasonable care could not have known,
            of the existence of facts by reason of which the liability is
            alleged to exist.   

                              *     *     *     *     *

                 XI. The rights and  remedies promulgated by this chapter
            are in addition to any  other right or remedy that may  exist
            at law or  in equity, but  this chapter does  not create  any
            cause of action not specified in this section or RSA 421-B:8,
            V. . . . 

                   421-B:32. Statutory Policy
                   421-B:32. Statutory Policy

                 This chapter shall be so construed as  to effectuate its
            general purpose to make uniform the law of those states which
            enact it and to coordinate the interpretation of this chapter
            with the related federal regulation.

                                         -31-
                                         -31-