Court Opinion

ID: 194962
Source: CourtListenerOpinion
Date Created: 2011-02-07 02:29:05+00
Date Added: 2024-06-11T09:05:54.766757
License: Public Domain

October 4, 1993   UNITED STATES COURT OF APPEALS
                    FOR THE FIRST CIRCUIT
                                        

No. 92-2342

                   JOHN P. MURRAY, ET AL.,

                   Plaintiffs, Appellants,

                              v.

                 ROSS-DOVE COMPANY, INC. AND

                       DOVETECH, INC.,

                    Defendants, Appellees.

                                        

                         ERRATA SHEET

   The opinion of this  Court issued on September 27,  1993, is
amended as follows:

   On page  12, last  line of  footnote 5,  replace "continual"
with "continued".

                UNITED STATES COURT OF APPEALS
                    FOR THE FIRST CIRCUIT
                                         

No. 92-2342

                   JOHN P. MURRAY, ET AL.,

                   Plaintiffs, Appellants,

                              v.

                 ROSS-DOVE COMPANY, INC. AND

                       DOVETECH, INC.,

                    Defendants, Appellees.

                                         

         APPEAL FROM THE UNITED STATES DISTRICT COURT

               FOR THE DISTRICT OF RHODE ISLAND

         [Hon. Ernest C. Torres, U.S. District Judge]
                                                    

                                         

                            Before

                   Torruella, Circuit Judge,
                                           
               Feinberg,* Senior Circuit Judge,
                                              
                  and Boudin, Circuit Judge.
                                           

                                         

Robert M. Duffy with whom Michael  P. DeFanti and Hinckley,  Allen
                                                                  
& Snyder were on brief for appellants.
    
Michael  B.  Waitzkin  with  whom  Eric  L.  Lewis,  Rima  Sirota,
                                                                 
Nussbaum &  Wald, Marc C. Hadden  and Gidley, Sarli &  Marusak were on
                                                          
brief for appellees.

                                         

                     September 27, 1993 
                                         

                        

*Of the Second Circuit, sitting by designation.

     BOUDIN,  Circuit  Judge.    This  is an  appeal  from  a
                            

decision  of the district  court withdrawing from  the jury a

commercial  dispute  at  the  end of  the  plaintiffs'  case.

Although  we think  that the  plaintiffs' evidence  failed to

show  fraud  and we  treat an  aiding  and abetting  claim as

abandoned,  the evidence of negligence and  injury was in our

view  just   adequate  to   foreclose  a   directed  verdict.

Accordingly, we affirm the  ruling as to the fraud  claim but

vacate the  judgment as to  the negligence claims  and remand

for further proceedings, strongly encouraging the parties  to

explore settlement of this case.

                        I. BACKGROUND

     Plaintiffs  are three individuals, Franklin D. Crawford,

John P. Murray, Jr. and J. Michael Murray, known collectively

as "the Crawford Group," and an associated investment entity,

Bevmar  Acquisition Corp.   Defendants are Ross-Dove Company,

Inc., a commercial auction firm, and Dovetech,  a division of

Ross-Dove  (which  may well  not be  a  suable entity).   The

dispute  arises  out of  an  appraisal done  by  Ross-Dove of

certain  assets  of  Bevmar, Inc.  ("Bevmar"),  a  California

corporation formerly  engaged in the manufacture  and sale of

electronic circuitry panels.

     In  1989,  one  Robert  H.  Marik,  an  acquaintance  of

Crawford, organized  Bevmar Acquisition  Corp. as part  of an

effort  to solicit  investments in  Bevmar.   In aid  of that

                             -2-

effort,  an  investment  banker  working with  Marik  engaged

Dovetech to appraise certain  of Bevmar's assets.  Dovetech's

appraisal was  conducted by  Bruce Schneider, with  help from

other  employees, and  was  completed  in  June 1989.    That

appraisal valued  Bevmar's  machinery, equipment,  molds  and

dies at three different values, ranging from over  $2 million

total to over  $6 million depending  on the circumstances  of

sale.  The appraisal  said that the appraised value  of molds

and dies should not decline for at least three years.

     In September  1989, Marik invited Crawford  to invest in

Bevmar, through the Bevmar  Acquisition Corp., and Marik made

the  Dovetech  appraisal  of  Bevmar's  assets  available  to

Crawford.    Crawford  contacted  Schneider  to  explain  his

interest  in  Bevmar  and  to determine  the  status  of  the

Dovetech  appraisal.   Schneider  assured  Crawford  that the

appraisal  was  still  valid.    In  October  1989  Crawford,

together with the two Murrays, paid $3 million for a stake in

Bevmar comprising a loan to Bevmar to be repaid at 20 percent

annual interest, a 40 percent equity interest in the company,

and a bonus depending on the fortunes of the company.

     To secure  the loan,  Bevmar gave  the Crawford  group a

security interest  in all of its  machinery, equipment, molds

and dies.  There were some discrepancies between items listed

in the  Dovetech appraisal and  items listed in  the recorded

security  filings, but the latter  lists were delayed and the

                             -3-

discrepancies  not  immediately  noticed.   What  did  become

rapidly  apparent  was  that  Bevmar  was  in  deep  trouble.

Crawford  invested a  further $500,000  but in  March 1990  a

chapter 7  petition was filed and  Bevmar entered bankruptcy.

When its assets  were liquidated, the amount  realized on the

machinery, equipment, molds and dies was about $453,000.

     The plaintiffs then commenced  this suit in the district

court  charging  Ross-Dove  and  Dovetech   with  negligence,

negligent misrepresentation,  fraud, and aiding  and abetting

the torts of others.1   Actual damages in the  amount of $4.5

million  were  sought,  as  well  as  punitive  or  exemplary

damages.  The  gist of  the complaint was  that Dovetech  had

carelessly  or dishonestly  overestimated  the  value of  the

assets  it had appraised in  June 1989 and  that the Crawford

group had  relied  to  its  detriment on  that  appraisal  in

investing in Bevmar.

     After  discovery,  a  four-day  jury  trial  occurred in

September 1992.   Plaintiffs offered testimony  from a number

of witnesses,  either in  person or by  deposition, including

the  three  Crawford  group members,  Schneider,  two  Bevmar

employees,  an employee  of  the company  that purchased  the

molds and  dies after  Bevmar's bankruptcy, and  an appraiser

who had appraised Bevmar machinery  and equipment and given a

                    

     1The last  of  these  claims  is not  discussed  in  the
plaintiffs'  brief  on appeal,  there  is  scant evidence  to
support such a claim, and we treat it as abandoned.

                             -4-

general  opinion about  the value  of its  molds and  dies in

March  1989.   Surprisingly,  plaintiffs did  not provide  an

expert   witness  to   testify  as   to  the   inadequacy  or

incompetence of Dovetech's appraisal.2

     At  the  close  of plaintiffs'  case,  defendants sought

judgment as a matter  of law under Fed. R. Civ.  P. 50(a)(1),

the  current name  of the  traditional relief  afforded  by a

directed  verdict.  On  October 1,  1992, the  district court

delivered a detailed oral opinion concluding  that plaintiffs

had  failed to show that the appraisal was inaccurate or that

defendants  were at  fault.   Alternatively, the  court found

failures of proof as to justifiable reliance on the appraisal

and as  to causation of injury.  Although we regard this case

as a close  call, on balance we think that  plaintiffs did at

the completion of their opening case have enough  evidence to

reach a jury on a negligence theory.

                         II. ANALYSIS

     On  a Rule  50(a) motion,  appellate review  is plenary.

American Private Line Serv., Inc. v. Eastern Microwave, Inc.,
                                                            

980 F.2d 33, 35 (1st Cir. 1992).  The evidence and inferences

from it are  considered in  the light most  favorable to  the

                    

     2Plaintiffs belatedly attempted to add an expert witness
but this  was disallowed because  the witness was  not timely
listed as  required by pretrial orders.   Plaintiffs complain
but  we see no error in this  ruling.  The district court did
allow plaintiff to make use of deposition testimony  of Steve
Piletz,  an expert appraiser who had appraised certain of the
assets in March 1989.

                             -5-

party opposing the  directed verdict,  here, the  plaintiffs.

Raymond  Steel, Inc. v.  Puerto Rican American  Ins. Co., 954
                                                       

F.2d 19, 22 (1st Cir. 1992).  A directed verdict is proper at

the  close  of plaintiffs'  case  only  when the  plaintiffs'

evidence, viewed in this light, would not permit a reasonable

jury  to find in favor  of the plaintiffs  on any permissible

claim or theory.

     A reviewing  court must thus ask  whether the plaintiffs

have  offered   enough   evidence  to   permit  findings   in

plaintiffs' favor on each of the  elements necessary to prove
                         

at least one cause of action.  Here, the parties have assumed

that Rhode  Island law defines  the causes of  action--why is

not clear--and we  accept this  premise.  See  In re  Newport
                                                             

Plaza Associates,  L.P., 985 F.2d  640, 644 (1st  Cir. 1993).
                       

It  also appears to be common ground that, under Rhode Island

law,  a   cause  of   action  for  negligence   or  negligent

misrepresentation  exists  if  the  Dovetech   appraisal  was

inaccurate, the inaccuracy  stemmed from negligence, reliance

on the appraisal was  justified, and the reliance proximately

                             -6-

resulted in injury.3   With  this yardstick, we  turn to  the

evidence.

                    

     3Because  plaintiffs' claims of negligence and negligent
misrepresentation  both  allege  negligent  supply  of  false
information,  we will consider them  as the same  claim.  See
                                                             
Ralston  Dry-Wall Co., Inc. v.  United States Gypsum Co., 740
                                                        
F. Supp. 926, 932 (D.R.I. 1990), aff'd, 926 F.2d 99 (1st Cir.
                                      
1991).  The Rhode  Island Supreme Court has not  yet directly
addressed  a cause of action for negligent misrepresentation,
Ostalkiewicz  v.  Guardian Alarm,  520  A.2d  563, 569  (R.I.
                                
1987), but federal courts applying Rhode Island law have held
that negligent misrepresentation is actionable.   E.g., Banco
                                                             
Totta e Acores v. Fleet Nat'l Bank, 768 F. Supp.  943, 946-47
                                  
(D.R.I. 1991);  Ralston Dry-Wall Company, Inc.,  740 F. Supp.
                                              
at 932.

                             -7-

                   A.  Inaccuracy and Fault
                                           

     The first two elements,  inaccuracy in the appraisal and

negligence in  its preparation, are closely  related and need

to  be considered  together.  In  the abstract,  an appraisal

could be inaccurate without fault,  or it could be carelessly

prepared but correct in its conclusion.  But in this case, as

in  many, the issues overlap  because if inaccuracy is shown,

the magnitude  of  the inaccuracy  may  be some  evidence  of

negligence.   How strong the  inference would be  depends, as

usual, on the facts.

     Here, plaintiffs'  best case for error  in the appraisal

and for negligence, stripped to its essentials, can be easily

summarized.  First and  most  important,  plaintiffs  offered

evidence of a gross disparity between the appraisals of value

assigned by Dovetech  to the  Bevmar molds and  dies in  June

1989 and the  value realized  for the Bevmar  molds and  dies

about a year later.  In the Dovetech appraisal, the molds and

dies were evaluated as follows:

     AUCTION:  $16,000 x 96 = $1,536,000
     ORDERLY:  $21,000 x 96 = $2,016,000
     IN PLACE: $42,000 x 96 = $4,032,000

According to  the appraisal, "auction" meant  disposition "as

is" at an  auction sale completed in a 30-40  day time frame;

"orderly"  meant orderly  liquidation over  a maximum  of six

months;   and  "in  place"  meant  as   part  of  an  ongoing

enterprise.

                             -8-

     When the  96 molds and  dies were auctioned as  a lot in

July 1990,  the winning bid was $40,000 for the whole lot and

was  made by Elcor Corporation,  which had sold  96 molds and

dies to Bevmar in  1986.  When its representative  arrived to

collect the  molds and  dies, he  found some  to  be in  poor

condition and others to be incomplete, missing or  claimed by

another  company.   Thus the  plaintiffs' starting  point was

their  proof (subject  to reservations  yet to  be discussed)

that  molds and  dies appraised  at a  minimum price  of $1.5

million in 1989 had sold for less than 3 percent  of the this

figure a year later.

     There  was far less of  a disparity as  to the machinery

and equipment; the minimum  estimate provided by Dovetech was

around  $676,000 and  the  auctions of  these items  returned

about $413,000.  The district court, after evaluating the gap

between  the  appraisal  and   the  realized  price  for  the

machinery and equipment found no proof of material inaccuracy

at  all.  But the molds and dies represented about two-thirds

of  the  total value  attributed  by  Dovetech to  machinery,

equipment,  molds  and  dies.    A  serious  error  in  their

appraisal could  by itself  easily be  an adequate  basis for

finding the appraisal to be materially in error.    

     The  disparity  in the  price  predicted  and the  price

realized  for the molds and  dies is hardly  conclusive.  The

auction might  not  have  been fair,  although  there  is  no

                             -9-

suggestion  of that in this record.  Or conditions might have

changed  so materially  that no  negligence could  be imputed

based on the disparity;  in this instance, Crawford testified

briefly that market conditions had if anything improved.  But

a very large  and unexplained disparity offers  a prima facie

case of error in the appraisal and  at least some evidence of

negligence.

     Whether  the  huge disparity  here  would  be sufficient

evidence of negligence need not be decided, because there was

further  evidence  that  cast  an unfavorable  light  on  the

appraisal.  All of the Bevmar  molds and dies were located at

Bevmar's California  plant or at about  eight other locations

where  they  were  held  by  Bevmar  subcontractors  to  make

products  for Bevmar.   Schneider  testified that  he visited

each of the nine  locations in making his appraisal  and then

consulted by  telephone with subcontractors and  others as to

what they would pay if the molds and dies were sold.

     But  Elcor's representative  testified that  after Elcor

won  the  bid  a year  later,  he  visited each  of  the nine

locations and found many  of the items in poor  condition, in

some cases  even unusable.   And a Bevmar  employee testified

that Schneider  had visited only three  of the subcontractors

when doing his appraisal, had not even examined all the molds

and dies  at these three stops,  and had been  told that some

items were missing.   There was testimony that the  molds and

                             -10-

dies were different and in different condition.  Against this

background, a jury could have regarded Schneider's assignment

of a uniform  figure to each of the 96  molds and dies (e.g.,
                                                            

$16,000  apiece if  auctioned)  as highly  suspicious and  as

further evidence that Schneider had done a sloppy appraisal.

     The deposition  testimony of  Schneider could  also have

reinforced  a   jury's  judgment   that  the   appraisal  was

negligent.  His expert credentials were fairly  thin but, far

worse, portions of his deposition transcript read to the jury

were  littered  with  the entry  "no  response"  when he  was

pressed  on the  puzzling uniformity  of figures  and related

matters.   There was no  real evidence of fraud  or of aiding

and abetting  fraud, and we do  not fault the  trial court in

withdrawing this issue  from the jury.  Yet at  least some of

the evidence that plaintiffs  associate with fraud could have

further undermined the jury's confidence in Schneider's skill

and care.4

     We  think  that  the  evidence recited  would  permit  a

reasonable jury to conclude that Schneider's appraisal of the

molds and dies was erroneous  in the sense that it was  not a

                    

     4Schneider  relied  in   appraising  the  machinery  and
equipment  located on the  East Coast on  photographs sent to
him  by a  Dovetech  employee  based  in Massachusetts.    He
apparently  knew  that Marik  was  seeking  a high  appraisal
figure.   And he  was associated,  although the  evidence was
somewhat confused, with a possible proposal in September 1989
for Ross-Dove itself to  offer $500,000 to Bevmar for  all of
the items in  question, the  same month in  which he  assured
Crawford that the June 1989 appraisal was still valid.

                             -11-

responsible estimate of value  and, further, to conclude that

its preparation was negligent.  A jury might not so find, and

a strong defense case might make such findings less likely or

even impossible.   Still, limiting ourselves  to the evidence

as it stood at  the close of plaintiffs' case,  and resolving

inferences  and   issue  of  credibility  in   favor  of  the

plaintiffs,  we  think that  a  jury  that  found  error  and

negligence in the appraisal would not be irrational.

     We turn  now to the  district court's discussion  of the

molds  and dies, a subject that the court fairly described as

difficult  and to which it gave careful attention.  The court

gave three reasons for  disregarding the discrepancy  between

appraisal and realized value.  The first was that Schneider's

appraisal  was  based on  the market  value  of the  items as

functioning molds  and dies whereas  the molds and  dies were

(in the  district court's words) "apparently  sold at auction

as scrap," some being  operational and some not.   This, said

the court,  made a comparison between  predicted and realized

price of the items a comparison of apples and oranges.

     With  respect, we think it might be more accurate to say

that Schneider  appraised the  molds and  dies as  apples but

they, or  some of them, turned out to be  oranges.  It is not

clear what knowledge Elcor  had of the molds and  dies before

the auction.  The molds and dies seem to have been advertised

for auction as  operational, since pictures of the items they

                             -12-

could produce were offered.  Having sold 96 molds and dies to

Bevmar  in 1986, Elcor may have supposed that it already knew

what  it was  getting.   At the  same time,  Elcor's bid  was

certainly  very low  and may  be open  to the  inference that

Elcor knew that many of the items were scrap or little more.

     No doubt, as the district court assumed, it  is implicit

in Schneider's estimate  of $1.5 million  that the molds  and

dies would be bought  for use, for $1.5 million  is obviously

above scrap  value.5   But  by  the  same token  it  is  also

implicit  in the appraisal that they were capable of such use

and would normally be  so employed, absent a major  change in

market conditions or in  the items themselves.  Yet  there is

no evidence  that market conditions had changed  by July 1990

or that  the items themselves had  unexpectedly deteriorated.

In sum,  a jury could  condemn Schneider  for appraising  the
                                                             

molds  and  dies as  useful when  in  fact they  were largely
                                                             

scrap.
     

     Second, the  district court  observed that the  buyer of

the molds and dies  at the auction got  only 20 to 40  of the

molds and dies.  The court found these to be "a far cry" from

the 96 that were  appraised by Dovetech, the more  so because

the  court said  that the more  valuable ones  were excluded.

                    

     5Piletz, who appraised Bevmar's machinery  and equipment
in   March  1989,   offered  an   informed  guess   based  on
reproduction value--not an appraisal--that the molds and dies
"might" sell for about $158,000 if sold as scrap and $634,000
if sold for continued use.

                             -13-

The  court  evidently   believed  that  the  discrepancy   in

appraisal and  price might  have been explained  by the  fact

that Dovetech  was appraising  a more extensive  and valuable

collection of molds and dies than the subset that was finally

bought by Elcor.

     The evidence,  however, permitted the jury  to find that

Elcor bid  on  the list  of  96 molds  and  dies without  any

knowledge  that  some  were  missing  or  owned  by  others.6

Further, Crawford's testimony that Elcor had found only 20 to

40 dies is coupled with the statement that many were obsolete

and "[h]ad not been running for  years."  The jury could well

have  thought  that, whatever  the  number  owned by  Bevmar,

Schneider had no business appraising such items at an average

value apiece of $16,000 (auction) to $42,000 (in place).
            

     Third,  the  district   court  held  that  because   the

discrepancy  reflected a difference  between market value and

scrap  value,  plaintiffs  were  required  to  offer   expert

evidence that  Schneider had erred in adopting a market value

approach; absent  such expert  guidance, said the  court, the

jury would  be  left to  "speculate"  on which  approach  was

correct.  Rhode Island law, even assuming that it controls on

this issue, does  not automatically require expert  testimony

                    

     6The 96 molds and dies were advertised as a lot, and the
Elcor   testimony  is   open  to   the  inference   that  its
representative was  surprised  when the  post-auction  survey
revealed fewer than had been promised.

                             -14-

to show negligence.  Murphy v.  United Steelworkers, 507 D.2d
                                                   

1342, 1345-46  (R.I. 1986).  But  we agree that,  if a choice

were  required   between  competing  concepts   of  value  or

competing  techniques of  appraisal an  expert might  well be

required.7

     Here, however, the evidence permitted the jury to assume

that Schneider's concept  of market value  was proper but  to

conclude that he  had negligently  assigned excessive  market

values to many  of the molds and dies.   And we conclude that

the jury  was capable of appraising  the plaintiffs' evidence

of  disparity and fault on its own, although expert testimony

would surely have been prudent and helpful.  There is nothing

recherche about the reasoning  behind the inferences based on

the  huge discrepancy  between  appraisal  and proceeds,  the

suspiciously uniform  estimates, and Schneider's  failure (if

the jury so found) to visit each of the sites and inspect the

molds.

                  B.  Reliance and Causation
                                            

     This brings us to  the second element of  the negligence

cause  of action for which the district court found a failure

                    

     7Piletz' deposition suggests that  he did believe that a
different  method  of  appraising  molds and  dies  than  the
telephone survey used  by Schneider  was called for.   It  is
very doubtful that Piletz' alternative approach was explained
adequately to  permit the jury to  reject Schneider's method.
But plaintiffs' far better case was that Schneider had used a
permissible method but botched  the job by failing to  do any
adequate inspection or make adequate inquiry. 

                             -15-

of proof, namely, justifiable reliance.   A bit of background

is  required.    The   evidence  suggested  that  there  were

discrepancies,  of  several  different  kinds,  between  what

Dovetech  appraised  and what  Bevmar  actually  owned.   The

missing molds  and dies and uncertainties  about ownership of

others have  already been mentioned.   It  also appears  that

some of the machinery and equipment in the appraisal may have

belonged  to a Rhode Island  state entity but  was counted in

the appraisal.      The  district  court   found  a  lack  of

justifiable reliance  because, it said,  the plaintiffs  were

not entitled  to  rely on  the  appraisal to  establish  that

Bevmar owned the  items appraised.   To the  extent that  the

items  were  not  owned  by Bevmar,  naturally  the  security

interest in Bevmar's inventory of equipment, machinery, molds

and  dies  had  a  reduced  value.    Therefore,   the  court

concluded, "the evidence  establishes as a matter of law that

there  was  no  justifiable  reliance  on  the  appraisal  to

establish the expected security interest in these assets."

     Plaintiffs  concede that  the  ownership  of  the  items

appraised  was not within the scope of the representations in

the appraisal.  At most,  the appraisal purported to appraise

property at Bevmar's facilities or, in the case of some molds

and  dies,  property  Bevmar  claimed to  have  lent  to  its

subcontractors.   Thus it is true  that plaintiffs would have

no case if  their cause  of action depended  on showing  that

                             -16-

they  reasonably  relied  upon  the  appraisal  to  establish

Bevmar's title.   It seems  to us that  plaintiffs' cause  of

action, specifically the showing of reliance and injury, does

not depend on such a showing.

     The problem is confused  because plaintiffs in this case

have been somewhat fuzzy  in their theory of damages.   It is

often attractive for a  plaintiff with evidence of wrongdoing

and evidence of loss  to throw the evidence  to the jury  and

hope  that the jury  will make a causal  connection.  In this

case  plaintiffs had  available  two different  theories, and

there are hints of both in  its pleadings and arguments.  One

theory is  that, but  for the misappraisal,  plaintiffs would

not  have invested  at all  and would  still have  their $3.5

million; the other is that their security interest would have

been worth more if the appraisal had been accurate.

     Plaintiffs offered  their  own testimony  on  the  first

theory,  namely, that they  would not  have made  the initial

investment if they had known that the assets in question were

worth  far  less  than  the  appraisal   said.8    From  this

standpoint,  it does not matter whether some of the assets in

question   belonged   to   Rhode    Island   or   to   Bevmar

                    

     8The testimony on this issue is not crystal clear but it
was adequate  for the jury  to draw  such a conclusion.   And
given  the  importance the  Crawford  group  attached to  the
appraisal,  evidenced by  other facts  (e.g., the  inquiry to
                                            
Schneider   and   a   separate   inquiry   into   Ross-Dove's
reputation), the conclusion is eminently plausible.

                             -17-

subcontractors.  If  plaintiffs' testimony is accepted,  then

the mistaken appraisal "caused" the loss in the familiar "but

for" sense:   but for  the mistake,  the loss would  not have

occurred.  (We defer for the moment questions of  intervening

cause.)  The  validity of the security  agreement simply does

not matter.

     Its  validity  very  much  does  matter  on  the  second

possible theory of injury, namely, that the misrepresentation

caused  loss insofar  as  it  overstated  the  value  of  the

security  interest,  reducing plaintiffs'  protection  in the

event  of bankruptcy.   On  this  theory, any  misestimate of

value would indeed be  harmless as to those assets  that were
                                                             

misappraised  but  were not  owned  by Bevmar.    Whether one
                                             

speaks of unjustified reliance  or lack of causal connection,

plaintiffs' damage  claims would be  proportionately reduced.

Perhaps any damage  recovery on this  second theory might  be
           

speculative on  this  record;9 but  we  need not  decide  the

point  for there  is nothing  obviously wrong with  the first

theory as a basis for getting to the jury.

     Defendants on  appeal offer  a different argument  as to

why  Crawford's  reliance  on  the  appraisal  could  not  be

justifiable reliance.   They argue that the  appraisal by its

                    

     9Arguably, it  would  be plaintiffs'  responsibility  to
show  which assets  were owned  by Bevmar  and the  extent to
which, as to those assets, the appraisal figure  exceeded the
price  received at auction.  It is unclear whether the record
permits such an allocation.

                             -18-

terms required the  consent of  Dovetech before  it could  be

distributed  to third parties other than Marik and Bevmar and

that, at least implicitly, this caveat made reliance on it by

third party investors unreasonable.   This view, if accepted,

would  undercut both  of  plaintiffs'  possible  theories  of

injury.  It was not adopted  by the district court as a basis

for the directed verdict.

     There was evidence at trial that Dovetech  knew that its

appraisal would  be distributed to financing  sources such as

plaintiffs.   Crawford also testified that  he told Schneider

that  he  (Crawford) and  others were  going  to rely  on the

appraisal in making their investment and Schneider reaffirmed

its  validity.   Piletz testified  that appraisers  know that

their work will be relied  on by third parties.  Thus  a jury

might  find that,  even if  the appraisal  caveat is  read as

defendants urge,  Dovetech had  waived its protection  or had

treated the Crawford group as  among those for whose  benefit

the appraisal had been done.

      Finally we turn to the district  court's third and last

reason  for its directed  verdict, which can  be described as

accepting an "intervening cause" defense.  The district court

found  that the lists of assets appraised by Dovetech did not

match  the list  of assets  included in  plaintiffs' security

agreement filing;  that attorneys acting in  some measure for

plaintiffs  disbursed plaintiffs' money at the closing before

                             -19-

certain of plaintiffs'  conditions were  satisfied; and  that

the  bankruptcy trustee  had challenged  the validity  of the

plaintiffs'  security  interest  in  the  pending  bankruptcy

proceedings   (a  challenge  that  has  now  apparently  been

dropped).

     The  first and  last  of these  "intervening causes"  of

injury are  irrelevant so  far as  the plaintiffs proceed  on

their first theory of recovery: as already shown, that theory

does  not depend on the validity of the security agreement at

all.   The  remaining "intervening  cause" is  the attorneys'

alleged  failure to insist at the closing that other promised

third-party  investments in  Bevmar  be  committed  and  that

certain  liens  against  its  property  be  satisfied.    The

district court's conclusion may  rest on the assumption that,

if  the client  instructions  had been  followed, either  the

initial $3 million would  never have been paid over  or, less

likely, the conditions if  satisfied would have prevented the

failure of Bevmar.

     There  was some  evidence  of  the  attorneys'  supposed

disregard  of   instructions,  but  very  little   about  the

significance or consequences of such disregard.  Rhode Island

law  is  not  especially  friendly to  an  intervening  cause

defense,  nor  especially  precise;  and  a  jury  instructed

                             -20-

according  to the  state's case  law might  have considerable

latitude.10    Measured  against  such language,  we  do  not

think  that the  evidence presented  as to  counsel's alleged

mistake at the  closing compelled  a jury to  decide that  an
                                 

intervening cause was responsible  for the plaintiffs'  loss.

Whether in  presenting their  defense defendants  could offer

more powerful evidence on this point is another matter.

                       III.  CONCLUSION

     To sum up, we  agree with the district court  that there

was  insufficient evidence of fraud to submit that claim to a

jury.  But in our view the jury did have sufficient evidence,

judged at the close of the plaintiffs' case, to find material

error  in the  appraisal and  negligence in  its preparation.

While plaintiffs  may face  hurdles on issues  of justifiable

reliance,  causation,  and  damages,  we  think  for  reasons

explained  above that  a  directed verdict  on those  grounds

cannot be justified at this stage.

                    

     10Thus,  "an   intervening  act  will  not   insulate  a
defendant from  liability if his negligence  was a concurring
proximate cause which had not been  rendered remote by reason
of  the  secondary  cause  which  intervened."    Roberts  v.
                                                         
Kettelle, 356 A.2d 207, 215 (R.I. 1976).  The first negligent
        
act will be  rendered remote  if "a second  actor has  become
aware  of the existence of  a potential danger  caused by the
negligence  of  a  first  actor  and  the second  actor  acts
negligently with regard  to the dangerous  condition, thereby
bringing  about  an accident  with injurious  consequences to
others."   Walsh v. Israel Couture Post, No. 2274 V.F.W., 542
                                                        
A.2d 1094, 1096-97 (R.I. 1988).  Further, "an intervening act
of negligence will not insulate an original tortfeasor  if it
appears that such  intervening act is a natural  and probable
consequence of the initial tortfeasor's act."  Id. at 1097.
                                                  

                             -21-

     On  remand  this  case  should be  settled,  if  humanly

possible.   The discrepancy  between the appraisal  value and

the amount  ultimately realized  for molds and  dies, coupled

with  the doubts  raised about the  appraisal's thoroughness,

ought to make the defense quite  uneasy about fault.  On  the

other hand, the defense may  be able in its own case  to do a

better  job   of  explaining  the  discrepancy   between  the

appraisal  and  auction  price  of  the  96  molds  and  dies

appraised  by  Schneider.   How a  jury  will dispose  of the

intervening cause defense is  anyone's guess.  And even  if a

jury makes an award, the award can be appealed.

     The  parties  now  have  a  pretty  fair  gauge  of  the

respective  strengths  and  weaknesses  of  their  positions.

Money spent on  further litigation  is a loss  to both  sides

regardless of the outcome, since most litigation expenses are

not  recoverable.  Full reconstruction  of the events in this

case for a  jury is likely  to be  especially expensive.   We

think  counsel would  not be  serving the interests  of their

clients  if they failed to  make an earnest  effort to settle

this case.

     The judgment  of the district court  is affirmed insofar
                                                     

as it  granted judgment as a  matter of law on  the claims of

fraud  and aiding and abetting and is vacated with respect to
                                             

the  negligence claims.    The case  is remanded  for further
                                                

proceedings.  No costs.

                             -22-