Invest Almaz v. Temple-Inland CV-97-374-JM 02/08/00 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

Invest Almaz

v. Civil No. 97-374-JM Opinion No.

Temple-Inland Forest Products Corporation

MEMORANDUM AND ORDER

This case arises out of the unsuccessful attempt by

Plaintiff Invest Almaz, a Russian corporation, to purchase the

equipment housed in a manufacturing plant located in Claremont,

New Hampshire. Invest Almaz acted through Pathex International

Ltd., its partner in a joint venture formed to acquire

manufacturing equipment that could be transported to Russia.

Pathex entered into an agreement to purchase the equipment from

the owner of the Claremont plant. Defendant Temple-Inland Forest

Products Corporation, a large corporation based in Texas. In

exchange for the equipment, Pathex promised to pay Temple-Inland

two million dollars in cash and to give Temple-Inland a secured

promissory note for three million dollars.

Although Invest Almaz advanced over six million dollars to Pathex for the purpose of purchasing the equipment, Pathex failed

to make any payments on the promissory note it gave to Temple-

Inland. After Pathex defaulted on the note, Pathex and Temple-

Inland forged a settlement in which Temple-Inland canceled

Pathex's indebtedness under the note and regained title to the

equipment. Temple-Inland also retained approximately $2.3

million in cash that it had received from Pathex over the course

of the transaction.

Invest Almaz then brought the present suit against Temple-

Inland, alleging that Temple-Inland is liable for: (1) aiding and

abetting Pathex in breaching a fiduciary duty owed to Invest

Almaz; (2) fraudulently concealing material terms of the asset

purchase agreement and subsequent settlement agreement; and (3)

unjustly enriching itself at Invest Almaz's expense. The first

two of these claims were tried to a jury. At the end of Invest

Almaz's case, this court granted judgment as a matter of law in

favor of Temple-Inland on the fraudulent concealment claim. At

the conclusion of the trial, the jury returned a verdict in favor

of Temple-Inland on the aiding and abetting claim.

2 In this order, I rule upon Invest Almaz's unjust enrichment

claim, which as an equitable claim for restitution was tried to

the court.1 For the reasons that follow, I conclude that Temple-

Inland was not unjustly enriched by the funds it received from

Pathex and therefore that Invest Almaz is not entitled to

restitution from Temple-Inland.

I. BACKGROUND2

Invest Almaz is a subsidiary of Almazy Rossii-Sakha, a

Russian company engaged in diamond mining. The mining company

created Invest Almaz to invest the pension and savings funds of

its miners and other employees. In early 1993, Invest Almaz

began to explore the possibility of investing in the production

of oriented strand board ("OSB"), a wood and wafer resin board

1 In a previous order, I denied Temple-Inland's request to allow the jury to decide the unjust enrichment claim. See Invest Almaz v. Temple-Inland Forest Prods. Corp., Civil No. C-97-374- JM,

(D.N.H. November 22, 1999) .

2 In this section, I set forth the background facts of the case. The contested issues of fact most relevant to Invest Almaz's claim for restitution are discussed in the following section of the order.

3 used as a construction material. Invest Almaz hoped to acquire a

plant to manufacture OSB, which it could use both to build

housing for its retired employees and to export in exchange for

hard currency.

On October 4, 1993, Invest Almaz entered into a joint

venture agreement with Pathex, a Canadian corporation that

claimed to have expertise in OSB production. The purpose of the

venture was to acquire a North American OSB manufacturing plant

that could be disassembled, transported to Russia, rebuilt, and

put into operation. Under the joint venture agreement, Pathex

assumed responsibility for locating a suitable plant, negotiating

the purchase of the plant's assets, and relocating the plant to

Russia. Invest Almaz's primary role was to supply the cash used

to purchase, remove and partially renovate the plant. Pathex

informed Invest Almaz that the total cost of acquiring such a

plant would be over 17 million dollars.

In late 1992 or early 1993, before it joined forces with

Invest Almaz, Pathex had already set about negotiating with

Temple-Inland for the sale of some or all of the assets of

4 Temple-Inland's OSB plant in Claremont, New Hampshire. On August

5, 1993, Temple-Inland and a Pathex subsidiary3 entered into an

agreement that granted Pathex an option to purchase the plant's

assets for five million dollars. The agreement provided for an

initial option price of $150,000, with the right to extend for

four additional months at a cost of $100,000 per month. The

option payments were to be credited against the purchase price,

but were otherwise nonrefundable. Because it paid an additional

$150,000 to extend the option beyond the period originally

contemplated by the agreement, Pathex ultimately paid a total of

$700,000 to Temple-Inland to keep the option in effect.

In 1994, Pathex exercised its option on the Claremont plant

and entered into an asset purchase agreement with Temple-Inland.

The agreement provided that two million dollars of the purchase

price would be paid at or before closing, with the remaining

three million dollars to be paid in the form of a promissory

3 The Pathex subsidiary was known as "1040028 Ontario, Inc." or "Newco." For simplicity's sake, I follow the parties' practice by referring to all Pathex entities as "Pathex," except when the specific identity of the entity is relevant to my legal analysis.

5 note. Temple-Inland would also receive a security interest in

the plant equipment, which were the only assets that Pathex

ultimately purchased. Pathex and Temple-Inland closed the sale

on March 31, 1994.

In the summer of 1994, Pathex failed to make the first

payment due under the note. Although Pathex and Temple-Inland

negotiated a series of extensions, Pathex ultimately defaulted

without making any payments on the note. Pathex and Temple-

Inland then devised a settlement agreement in which Temple-Inland

released Pathex from its indebtedness under the note in exchange

for a reconveyance of the secured assets back to Temple-Inland.

In addition to reacquiring title to the plant equipment, Temple-

Inland retained approximately $2.3 million in cash that it had

received from Pathex during the course of the transaction.

II. DISCUSSION

Invest Almaz claims that it is entitled to restitution from

Temple-Inland for approximately $2.3 million that Temple-Inland

received from Pathex and that Pathex, in turn, received from

Invest Almaz. The crux of Invest Almaz's claim for restitution

6 is that Temple-Inland unjustly enriched itself at Invest Almaz's

expense as a result of a settlement agreement that left Temple-

Inland in possession of both the plant equipment and the funds

paid to Temple-Inland as part of the purchase price for that

equipment. Invest Almaz alleges that because it was the original

source of the funds paid to Temple-Inland, it conferred a benefit

on Temple-Inland and is entitled to restitution. See PI.' s

Second Am. Compl. (Doc. #31) 52-54.4

In a submission filed after the close of trial. Invest Almaz

advanced two legal theories in support of its claim for

restitution. First, Invest Almaz asserted that it is entitled to

restitution under general equitable principles as expressed in

New Hampshire common law. See Pi.'s Proposed Findings of Fact &

Conclusions of Law (Doc. #98) at 5-6 and attached Mem. in Supp.

at 5-6. Second, Invest Almaz introduced for the first time in

this litigation a theory of recovery based on §201(1) of the

4 While Invest Almaz's amended complaint provides $2,180,000 as the amount paid to Temple-Inland, at trial Invest Almaz argued and offered evidence in support of the $2.3 million figure. See infra section II.A.

7 Restatement of Restitution. See Pi.' s Proposed Findings of Fact

& Conclusions of Law (Doc. #98) at 6-9 and attached Mem. in Supp.

at 7-14. I consider each of these theories in turn.

A. New Hampshire Common Law of Restitution and Unjust Enrichment

New Hampshire has a well-established body of common law

dealing with restitution and unjust enrichment. The principles

set forth in these cases provide the most appropriate basis for

deciding Invest Almaz's claim for equitable relief.

Under New Hampshire law, restitution is an equitable remedy

that a court may use to prevent unjust enrichment. "A trial

court may require [a defendant] to make restitution for unjust

enrichment if [the defendant] has received a benefit which would

be unconscionable for him to retain." R. Zoppo Co., Inc. v. City

of Manchester,

(1982) (citing Petrie-Clemons

v. Butterfield,

(1982)). The doctrine of

unjust enrichment provides that "one shall not be allowed to

profit or enrich himself at the expense of another contrary to

equity." Pacamor Bearings, Inc. v. Minebea Co., Ltd.,

(D.N.H. 1995) (quoting Cohen v. Frank Developers, Inc.,

(1978)) (internal quotation marks

omitted).

The absence of an express contractual agreement between

Invest Almaz and Temple-Inland is not fatal to Invest Almaz's

restitution claim. Because restitution is an equitable remedy

based on quasi-contract, i.e., an obligation implied in law, the

existence of an express contract is not determinative under New

Hampshire law. See Pacamor Bearings, 8 92 F. Supp. at 35 6; Pella

Windows and Doors, Inc. v. Faraci,

(1990); R .

Z o p p o , 122 N.H. at 1113. As the Supreme Court of New Hampshire

has explained, a quasi-contract or implied-in-law contract is "a

legal remedy imposed by a court 'without reference to the assent

of the obligor, . . . arising . . . from the receipt of a benefit

the retention of which is unjust, and requiring the obligor to

make restitution.'" Morgenroth & Assocs., Inc. v. Town of

Tilton,

(1981) (quoting Presbv v. Bethlehem

Village Dist.,

(1980) (quoting State v. Halev,

(1946) )) .

Furthermore, Invest Almaz is not required to demonstrate

9 that Temple-Inland acted wrongfully in retaining the funds it

received from Pathex. Rather, Invest Almaz is entitled to

restitution if it can show that Temple-Inland was unjustly

enriched, "either through wrongful acts or [through] passive

acceptance of a benefit that would be unconscionable to permit

[Temple-Inland] to retain." R. Zoppo Co.,

(citing Cohen,

); see also Curtis Mfg. Co., Inc.

v. Plasti-Clip Corp.,

(D.N.H. 1995); Petrie-

Clemons , 122 N.H. at 127.

To determine "whether the facts and equities of [this]

particular case warrant a remedy in restitution," Petrie-Clemons,

, I must decide whether Temple-Inland has been

unjustly enriched. The answer to that question depends on

whether it would be unconscionable for Temple-Inland to retain

both the equipment and the funds it received from Pathex. If I

conclude that Temple-Inland was unjustly enriched at Invest

Almaz's expense, then I must determine the amount of money that

Invest Almaz is entitled to receive in restitution. Under New

Hampshire law, "when a court assesses damages in an unjust

10 enrichment case, the focus is not upon the cost to the plaintiff,

but rather it is upon the value of what was actually received by

the defendant[ ] lacomini v. Liberty Mut. Ins. Co.,

(1985) (quoting R. Zoppo,

) (internal

quotation marks omitted); see also Petrie-Clemons,

.

To apply these principles to Invest Almaz's claim for

restitution, I first must determine whether Invest Almaz

conferred a benefit on Temple-Inland. The answer to this

preliminary question is yes. The evidence presented at trial

establishes that over the course of the transaction, Pathex paid

a total of approximately $2.3 million to Temple-Inland. See

Pi .'s Ex. 22 at TI-000831; Sweeny Testimony, Trial Transcript,

Day 1, Afternoon Session (Doc. #77) at 77, 79; Cooke Testimony,

Trial Transcript, Day 3, Morning Session (Doc. #81) at 16-17;

Vorpahl Testimony, Trial Transcript, Day 4, Morning Session (Doc.

#85) at 57-58, 60-61. The evidence further demonstrates that

Invest Almaz was the original source of those funds. See Vorpahl

Testimony, Trial Transcript, Day 4, Morning Session (Doc. #85) at

11 58, 59, 61; Dep. of Charles A. Kosa at 206-07. Accordingly, I

conclude that Invest Almaz, acting through its coventurer Pathex,

conferred a benefit on Temple-Inland.

The next question that I must answer is whether it would be

unconscionable for Temple-Inland to retain the benefit it

received. I conclude for the following reasons that it is not

unconscionable for Temple-Inland to retain the funds in question:

(1) Temple-Inland gave value in return for the funds; (2) Temple-

Inland incurred substantial expenses attributable to the sale of

the equipment to Pathex; (3) Temple-Inland received the bulk of

the funds in good faith as partial payment for the equipment; and

(4) Invest Almaz failed to produce at trial any evidence that the

settlement agreement between Temple-Inland and Pathex was

unreasonable or unconscionable. I explain each of these reasons

in turn.

1. Temple-Inland Gave Value

Temple-Inland gave value in exchange for the funds it

received from Pathex. First, $700,000 of the $2.3 million that

Pathex paid to Temple-Inland represented payments made in

12 consideration of (and subsequently to extend) the August 5, 1993

option agreement. See P i .'s Ex. 7; Pl.'s Ex. 22 at TI-000831;

Sweeny Testimony, Trial Transcript, Day 1, Afternoon Session

(Doc. #77) at 72; Vorpahl Testimony, Trial Transcript, Day 4,

Afternoon Session (Doc. #86) at 26. In return for these

payments, Temple-Inland granted Pathex an exclusive option to

purchase the plant buildings, land, and equipment. See Pl.'s Ex.

7. Because Pathex (and by extension its coventurer Invest Almaz)

reaped the full benefit of the option agreement. Invest Almaz is

not entitled to recover the option payments.

Second, after Pathex failed to make timely payments on the

promissory note, it paid Temple-Inland a total of $300,000 in

delinquency charges. See Pl.'s Ex. 22 at TI-000831 (showing

payment of $120,000 received in August 1994 and payment of

$180,000 received in September 1994); Def.'s Ex. HH at 000073-

000078; Vorpahl Testimony, Trial Transcript, Day 4, Afternoon

Session (Doc. #86) at 38-39. These payments, which were not

attributable to the outstanding debt, were made solely in

consideration of Temple-Inland's agreement to grant Pathex

13 additional time to meet its obligations under the note. See

Pl.'s Ex. 42; Def.'s Ex. HH at 000073; Vorpahl Testimony, Trial

Transcript, Day 4, Afternoon Session (Doc. #86) at 38-39.

Because Pathex (and thus Invest Almaz) received the benefit of

these payments. Invest Almaz is not entitled to a return of these

funds.

Taken together, the option payments and the delinquency

payments amount to one million dollars for which Temple-Inland

gave full value. Because Temple-Inland was justly entitled to

that amount. Invest Almaz cannot recover those funds in equity.

2. Temple-Inland Incurred Expenses Attributable to the Transaction

Temple-Inland claims that it incurred expenses attributable

to the sale of the equipment that must be offset against any

benefit that it received from Invest Almaz. Specifically,

Temple-Inland claims three types of expenses: carrying costs,

environmental costs, and the cost of a payment that it made to

General Electric Company. See Def.'s Regs, for Findings of Fact

and Rulings of Law (Doc. #97) at 5-7. For the reasons that

follow, I find that only the payment to General Electric is an

14 expense chargeable to the transaction.

I reject Temple-Inland's contention that it incurred

carrying costs related to the Claremont plant that should be

offset against the $2.3 million it received from Pathex. Temple-

Inland has already been compensated, by means of the option

payments, for any carrying costs it incurred during the option

period. Moreover, Temple-Inland cannot have incurred carrying

costs associated with the plant equipment from the date of the

closing to the date that Temple-Inland regained title to the

equipment as a result of the post-default settlement, because

Pathex owned the equipment during that period. Furthermore,

because Pathex ultimately elected to take title only to the plant

equipment and not to the land and buildings, see Pl.'s Ex. 17,

any of Temple-Inland's expenses associated with the land and

buildings are not attributable to the transaction. Finally,

Temple-Inland cannot be credited with any carrying costs incurred

after it regained title to the equipment, because at that point

the transaction had been completed and Temple-Inland was free to

15 sell the assets to another purchaser.5 Accordingly, I find that

Temple-Inland did not have any carrying costs associated with the

plant equipment that can fairly be charged against the $2.3

million it received from Pathex.

I also reject Temple-Inland's attempt to offset against the

funds it received from Pathex the cost of evaluating and

ameliorating environmental conditions at the plant site. The

cost of cleaning up the site is not attributable to the

transaction, because Temple-Inland had an independent legal duty

to conform with environmental standards. Although the cleanup

may have occurred when it did due to the impending sale to

Pathex, Temple-Inland was nonetheless obligated to perform the

cleanup even in the absence of the sale. Accordingly, Temple-

Inland cannot charge the cost of the cleanup against the funds

that it received from Pathex.

Unlike the carrying and environmental costs, however, the

5 In fact, evidence at trial showed that Temple-Inland did find another company willing to purchase the equipment, although that sale ultimately fell through. See Pl.'s Ex. 63; McClain Testimony, Trail Transcript, Day 7 (Doc. #94) at 95-97.

16 payment that Temple-Inland made to General Electric is an expense

incurred as a direct result of the sale of the equipment to

Pathex. In November 1981, the Elmendorf Board Corporation, the

company that owned the Claremont plant before it was purchased by

Temple-Inland, entered into a "tax benefit transfer agreement" or

capital lease agreement with General Electric. See Def.'s Ex.

MM; Def.'s Ex. NN; Vorpahl Testimony, Trial Transcript, Day 4,

Afternoon Session (Doc. #86) at 34-36. This agreement gave

General Electric certain tax benefits, provided that the

equipment remained in use at the plant during the fifteen-year

period of the lease. See

After Elmendorf went bankrupt,

Temple-Inland purchased the plant subject to the provisions of

the lease agreement with General Electric. See Def.'s Ex. NN.

When Temple-Inland sold the equipment to Pathex, General Electric

incurred a tax liability in the amount of $320,000 because Pathex

intended to remove the equipment from the plant before the

fifteen-year lease period had expired. See Vorpahl Testimony,

Trial Transcript, Day 4, Afternoon Session (Doc. #86) at 34-36.

Because Temple-Inland had acquired the equipment subject to the

17 lease agreement, it was obligated to compensate General Electric

for this liability. See id.; Def.'s Ex. NN; Pl.'s Ex. 22 at II-

000828, TI-000831. I conclude that the cost of the $320,000

payment to General Electric is attributable to the transaction,

because Temple-Inland would not have been required to make the

payment if the equipment had been sold at a later date or to a

purchaser that did not intend to remove it from the plant.

I find that Temple-Inland incurred $320,000 in expenses as

a result of the sale of the equipment to Pathex. I further find

that Pathex received full value for $700,000 in option payments

and $300,000 in delinquency payments that it made to Temple-

Inland. Accordingly, I conclude that 1.32 million dollars of the

funds that Temple-Inland received from Pathex are accounted for

by value given and costs associated with the transaction. This

amount must be deducted from any potential award of restitution,

because Temple-Inland was justly entitled to these funds. This

calculation leaves $980,000 as the maximum potential amount of

the benefit conferred upon Temple-Inland by Invest Almaz.

Therefore, I must determine whether it would be unconscionable to

18 allow Temple-Inland to retain the remaining $980,000. As set

forth below, I conclude that it is not unconscionable for Temple-

Inland to retain those funds.

3. Temple-Inland Received the Funds as Partial Payment for the Equipment

Temple-Inland received two million dollars of the $2.3

million paid to it by Pathex as partial payment toward the five

million dollar purchase price of the equipment.6 After receiving

the cash down payment, Temple-Inland transferred title to the

equipment to Pathex, subject to the promissory note and security

agreement. Because Temple-Inland received the two million

dollars in good faith as part of the total amount that Pathex

owed it under the asset purchase agreement, it was not unjustly

6 I have found that of the $2.3 million dollars paid by Pathex to Temple-Inland, $300,000 consisted of delinquency payments that were not to be credited against the purchase price. See supra section II.A.I. The remaining two million dollars in cash, which comprised the down payment, consisted of the $700,000 in option payments, see id., and $1.3 million in cash that Pathex paid to Temple-Inland at the time of closing. See Pl.'s Ex. 22 at TI-000831; Pl.'s Ex. 16 at TI-000266; Sweeny Testimony, Trial Transcript, Day 1, Afternoon Session (Doc. #77) at 72. The $980,000 "benefit" conferred upon Temple-Inland comprises part of the two million dollar down payment.

19 enriched by those funds. C f . Indus. Indemnity Co. v. Truax Truck

Line, Inc.,

(5th Cir. 1995) ("The Restatement of

Restitution . . . provides, if payment is made, even by mistake,

to a creditor of a third person to satisfy a just debt of that

third person, the payor has no right of restitution of or from

the third party.") (quoting Omnibank of Mantee v. United Southern

Bank,

(Miss. 1992) (citing Restatement of

Restitution § 14(1) (1937))); United States v. Bedford Assocs.,

, 904 (2d Cir. 1983) ("It is well established that

the court has discretion to deny a plaintiff restitution of an

unrequired payment to a defendant, where the defendant has

received the payment in good faith and used it in satisfaction of

the debt of a third person to the defendant."); Ecruilease Corp.

v. Hentz, 634 F.2d850, 853 (5th Cir. 1981) ("It is patently

unfair to require an innocent payee who has received and used the

money to satisfy a debt to repay the money."). In other words,

because Temple-Inland "had a sufficient legal . . . claim" to the

funds it received as down payment on the equipment, "equity will

not compel restitution" of those funds. Ecruilease, 634 F.2d at

20 854 .

4. Invest Almaz Produced No Evidence that the Post- Default Settlement was Inequitable

Under the terms of the post-default settlement agreement

between Temple-Inland and Pathex, Temple-Inland regained title to

the plant equipment (i.e., the collateral under the security

agreement), in return for which it canceled the three million

dollar debt that Pathex owed under the promissory note and

released Pathex from any attendant liability related to the asset

purchase transaction. See Pl.'s Ex. 60; Sweeny Testimony, Trial

Transcript, Day 1, Afternoon Session (Doc. #77) at 78-79; Vorpahl

Testimony, Trial Transcript, Day 4, Morning Session (Doc. #85) at

60-61. I would find the settlement agreement to be

unconscionable if Invest Almaz had established that sale of the

collateral at public auction would have yielded an amount greater

than the amount of the secured debt plus the cost of the sale.

Any such surplus would have been recoverable by the debtor,

Pathex, see

-A:9-504(2) (1994), and

perhaps ultimately by Invest Almaz. Temple-Inland would have

been unjustly enriched if it had deprived Pathex or Invest Almaz

21 of such a surplus. At trial, however. Invest Almaz failed to

present any evidence that the equipment could have been sold at

auction for an amount greater than the outstanding three million

dollar debt owed by Pathex. In the absence of any such evidence,

it is neither unreasonable nor unconscionable to allow Temple-

Inland to retain both the collateral and the funds paid by Pathex

as down payment on the purchase price.

In short, I conclude that Temple-Inland was not unjustly

enriched by the $2.3 million that it received from Pathex,

because: (1) Temple-Inland received one million dollars as

compensation for the option agreement and for agreeing to grant

Pathex additional time to make payments on the promissory note;

(2) Temple-Inland was obligated to pay $320,000 to General

Electric as a direct consequence of the transaction; (3) Temple-

Inland received two million dollars in good faith as partial

payment toward the purchase price of the equipment; and (4) in

the absence of any evidence that the equipment could have been

sold at auction for more that the amount of Pathex's outstanding

debt, the post-default settlement agreement between Temple-Inland

22 and Pathex was not unconscionable. Because Temple-Inland was

entitled to regain title to the equipment and retain the funds it

received from Pathex, Invest Almaz is not entitled to restitution

under New Hampshire common law.

B. Restatement of Restitution § 201(1)

I now turn to Invest Almaz's second theory of recovery,

which is based on § 201(1) of the Restatement of Restitution. As

explained below, I reject Invest Almaz's argument under the

Restatement both because it is not clear that the New Hampshire

Supreme Court would recognize the argument and because the

argument fails on its merits.

Invest Almaz has not cited, and independent research has not

revealed, any decision in which the New Hampshire Supreme Court

(or any federal court deciding under New Hampshire law) has

recognized a claim for restitution under § 2 0 1 (I).7 I am

7 Courts applying the laws of other jurisdictions have given credence to the theory of restitution set forth in Restatement § 201(1). See, e.g., Higgins v. Shenanqo Pottery C o .,

, 53-4 (3d Cir. 1960) (Pennsylvania law); Higgins v. Shenanqo Pottery Co.,

, 510 (3d Cir. 1958) (same); Lawyers Title Ins. Corp. v. United Am. Bank of Memphis,

(W.D. Tenn. 1998) (Tennessee law); Terrvdale

23 reluctant to predict that the New Hampshire Supreme Court would

adopt this theory of recovery in the present case, especially

when it could decide the case based on the body of New Hampshire

case law on restitution described and applied above. The First

Circuit has warned that "litigants who reject a state forum to

bring suits in federal court under diversity cannot expect that

new trails will be blazed." Ryan v. Royal Insurance Co. of

America,

(1st Cir. 1990) .8

Liquidating Trust v. Barness,

(S.D.N.Y. 1984) (Missouri law); B.J. McAdams, Inc. v. Boggs,

(E.D. Pa. 1977) (Pennsylvania law); Brown v. New York Life Ins. Co.,

, 260 n.15 (D. Or. 1944), aff'd ,

(9th Cir. 1945); Midstate Amusement Corp. v. Rivers,

(E.D. Wash. 1944); Demoulas v. Demoulas,

, 1169 (Mass. 1998); Namow Corp. v. Eqqer,

(Nev. 1983); Regal Ins. Co. v. Summit Guar. Corp.,

(Iowa 1982) .

8 Invest Almaz's equitable claim is unlike its claim for aiding and abetting a breach of fiduciary duty, which depended upon the adoption of a cause of action from the Restatement (Second) of Torts that had not previously been recognized by the New Hampshire Supreme Court. In the case of the tort claim. New Hampshire did not already have a well-established body of law that applied to the claim, and thus it was reasonable to conclude that the New Hampshire Supreme Court would, if squarely presented with the issue, adopt the Restatement position. See Invest Almaz v. Temple-Inland Forest Prods. Corp., Civil No. 97-CV-374-B, slip op. at 9-10 n.4 (D.N.H. August 18, 1998) . The claim for

24 Moreover, even when applied. Invest Almaz's theory of

recovery under § 201(1) of the Restatement of Restitution fails

on its merits. Section 201(1) provides that "[w]here a fiduciary

in violation of his duty to the beneficiary transfers property or

causes property to be transferred to a third person, the third

person, if he gave no value or if he had notice of the violation

of duty, holds the property upon a constructive trust for the

beneficiary." Restatement of Restitution § 201(1) (1937).

Assuming for purposes of analysis that Pathex owed a fiduciary

duty to Invest Almaz and that Pathex breached that duty by

transferring $2.3 million to Temple-Inland,9 Invest Almaz is

restitution, by contrast, directly implicates an existing body of New Hampshire case law.

9 Recovery under § 201(1) requires that Pathex's transfer of the $2.3 million to Temple-Inland itself constitute a breach of fiduciary duty. Although I have assumed for purposes of analysis that this requirement is satisfied, I note that Invest Almaz has not shown (or even clearly argued) that the transfer of funds itself breached Pathex's duty. Rather, Invest Almaz seems to argue that Pathex's breach stemmed from its decision to take title to the equipment in the name of a Pathex subsidiary, combined with its intention to resell the equipment to Invest Almaz at a profit. See Pl.'s Mem. in Supp. of Proposed Findings of Fact & Conclusions of Law (Doc. #98) at 13.

25 entitled to restitution under § 201(1) if it can prove either of

the following: that Temple-Inland gave no value for the funds it

received or that Temple-Inland had notice of Pathex's breach of

duty. Invest Almaz argues that it is entitled to restitution

under either of these prongs. I disagree.

The evidence introduced at trial demonstrates that Temple-

Inland gave value for the funds it received from Pathex. As

discussed above, Temple-Inland gave value by: (1) providing

Pathex with an exclusive option to purchase the plant, in

accordance with the option agreement; (2) granting Pathex

additional time to make payments on the promissory note, in

return for the delinquency payments; and (3) transferring title

to the equipment to Pathex, subject to a three million dollar

promissory note and a security agreement. Because Temple-Inland

gave value for the funds it received from Pathex, Invest Almaz is

not entitled to restitution under the first prong of § 201(1).

The second prong of § 201(1) focuses on whether Temple-

Inland had notice of Pathex's breach of duty. Invest Almaz

contends that the Restatement of Restitution requires only

26 constructive notice of breach. In support of this contention.

Invest Almaz cites § 174 of the Restatement, which provides in

relevant part that "a person has notice of facts giving rise to a

constructive trust if he knows the facts or should know them."

Restatement of Restitution § 174. Invest Almaz maintains that

Temple-Inland had constructive notice that Pathex was breaching a

fiduciary duty owed to Invest Almaz because "Temple-Inland knew

that although Pathex was not the real party in interest putting

up the money to purchase the plant (a) Pathex sought to transfer

title to the plant not to Invest Almaz but to a Pathex subsidiary

and (b) Pathex sought to resell the plant to the Russian company

[e.g.. Invest Almaz] at a profit." Pi.'s Mem. in Supp. of

Proposed Findings of Fact & Conclusions of Law (Doc. #98) at 13

(alteration added).

I find, however, that the evidence adduced at trial does not

establish that Temple-Inland had even constructive notice of any

breach of duty by Pathex. First, there is no evidence to support

the proposition that Pathex's decision to take title to the

equipment in the name of a subsidiary gave or should have given

27 Temple-Inland any reason to suspect that Pathex was breaching a

fiduciary duty. George Vorpahl, general counsel and vice

president of Temple-Inland, see Vorpahl Testimony, Trial

Transcript, Day 3, Afternoon Session (Doc. #82) at 34, offered

credible testimony that he considered Pathex's decision to enter

the option agreement through a subsidiary to be an unremarkable

feature of the transaction. See Vorpahl Testimony, Trial

Transcript, Day 4, Afternoon Session (Doc. #86) at 20; Vorpahl

Testimony, Trial Transcript, Day 3, Afternoon Session (Doc. #82)

at 60. I find that Vorpahl's testimony supports an inference

that Temple-Inland officials similarly viewed Pathex's use of a

subsidiary to effectuate the asset purchase transaction as an

ordinary business practice.

Nor is there is any evidence that Temple-Inland knew or

should have known that Pathex was planning to breach a fiduciary

duty by reselling the equipment to its Russian coventurer at a

profit. Notwithstanding Invest Almaz's suggestion to the

contrary, Vorpahl's speculative statement that he "assumed" that

Pathex would resell the plant assets for a higher price than it

28 had paid for them, see Vorpahl Testimony, Trial Transcript, Day

3, Afternoon Session (Doc. #82) at 44-45, does not establish that

Temple-Inland had constructive notice of a breach of duty by

Pathex.

Accordingly, I determine that Invest Almaz is not entitled

to restitution under Restatement § 201(1) because even assuming

that Pathex's payment of $2.3 million to Temple-Inland was a

breach of fiduciary duty, Temple-Inland gave value and lacked

notice of the breach. See Restatement of Restitution § 172(1)

("Where a person acquires title to property under such

circumstances that otherwise he would hold it upon a constructive

trust or subject to an equitable lien, he does not so hold it if

he gives value for the property without notice of such

circumstances.").

Ill. CONCLUSION

For the above-stated reasons, I conclude that Invest Almaz

is not entitled to restitution from Temple-Inland for any part of

the $2.3 million that Invest Almaz paid to Pathex and that

Pathex, in turn, paid to Temple-Inland.

29 SO ORDERED.

James R. Muirhead United States Magistrate Judge

February 8, 2000

cc: Michael C. Harvell, Esq. Mark H. Alcott, Esq. Russell F. Hilliard, Esq.

30