

                United States Court of Appeals
                    For the First Circuit
                                         

No. 94-2161

                    LEVI C. ADAMS, ET AL.,

                    Plaintiffs, Appellees,

                              v.

                      ZIMMERMAN, ET AL.,

                    Defendants, Appellees.

                                         

            FEDERAL DEPOSIT INSURANCE CORPORATION,

                    Defendant, Appellant.

                                         

No. 94-2162

                    LEVI C. ADAMS, ET AL.,

                   Plaintiffs, Appellants,

                              v.

                      ZIMMERMAN, ET AL.,

                    Defendants, Appellees.

                                         

            FEDERAL DEPOSIT INSURANCE CORPORATION,

                     Defendant, Appellee.

                                         

No. 94-2246

                    LEVI C. ADAMS, ET AL.,

                    Plaintiffs, Appellees,

                              v.

                      ZIMMERMAN, ET AL.,

                    Defendants, Appellees.

                                         

            FEDERAL DEPOSIT INSURANCE CORPORATION,

                    Defendant, Appellant.

                                         

No. 94-2247

                    LEVI C. ADAMS, ET AL.,

                   Plaintiffs, Appellants,

                              v.

                      ZIMMERMAN, ET AL.,

                    Defendants, Appellees.

                                         

        APPEALS FROM THE UNITED STATES DISTRICT COURT

              FOR THE DISTRICT OF MASSACHUSETTS

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

                                         

                            Before

                    Torruella, Chief Judge,                                                      
                    Lynch, Circuit Judge,                                                    
                and Stearns,* District Judge.                                                        

                                         

   Vincent M. Amoroso,  with whom Harry  A. Pierce and  Parker,                                                                           
                                                

   *Of the District of Massachusetts, sitting by designation.

                              2

Coulter, Daley &amp; White were on brief, for plaintiffs.                                
   J. Scott Watson, Federal Deposit Insurance Corporation, with                              
whom David S. Mortensen, Glenn D. Woods, and Tedeschi, Grasso and                                                                           
Mortensen were on brief,  for defendant Federal Deposit Insurance                   
Corporation.

                                         

                       January 19, 1996
                                         

                              3

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

development  led  to these  appeals,  which  raise issues  of

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

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

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

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

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

adjustment of the remedies fashioned by the district court.

          These  consolidated cross appeals  arise out of the

development of the  Hyannis Harborview Hotel.   The units  in

the Hotel were marketed  and sold by the University  Bank and

Trust  Company and  the other  defendants as  "pooled income"

condominium  units.   Although these  units were  securities,

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

Hotel  faltered,  the  plaintiffs, purchasers  of  individual

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

of unregistered securities in violation of the  Massachusetts

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

The  Bank  was  later declared  insolvent  and  the FDIC,  as

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

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

barred  the plaintiffs'  registration  claims,  the  district

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

awarded the plaintiffs rescissionary damages, attorneys' fees

and interest.

                             -4-                                          4

            I.  Background And Procedural History

          In  1985,  Gary  Zimmerman,  president  of  Hyannis

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

financial  and marketing  advice about  converting  the Hotel

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

largest stockholder, Vice Chairman of its Board of Directors,

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

for  an  interest  in the  project.    Keezer  brought Norman

Chaban, an expert in  condominium marketing, into the project

to manage  the marketing  and sales of  the condominiums  and

arranged to  have a $6.8 million  condominium conversion loan

placed through the Bank.

          To make  the Hotel  units more  attractive, Keezer,

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

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

receive income  based  upon their  pro rata  interest in  the

entire  condominium  project   rather  than  on   the  income

generated by their individual units.  The Hotel's Declaration

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

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

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

                             -5-                                          5

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

          When several  of the plaintiffs were  unable to get

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

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

After   the  plaintiffs  executed  their  purchase  and  sale

agreements,   which  incorporated  by  reference  the  Master

Documents, the  Loan Committee (with Keezer  voting) approved

end  loans  to  several  of  the  plaintiffs  to finance  the

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

arm,   University   Financial   Services   Corporation,   had

considered and approved such  end loans, a type of  financing

arrangement  not considered standard procedure in the banking

business  at the  time.   The  plaintiffs then  purchased the

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

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

financing from other lending institutions.

          The  units  were  never registered  as  securities.

About six  months after  the plaintiffs purchased  the units,

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

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

unhappy  plaintiffs in  1989  filed  their six-count  amended

complaint  against HHI,  Zimmerman,  Chaban,  Keezer and  the

                             -6-                                          6

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

Currency declared  the Bank insolvent and  appointed the FDIC

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

defendant.

          The district court granted summary judgment for the

FDIC  based  on  its   special  defenses  under  D'Oench  and                                                                    

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

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

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

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

things, that the plaintiffs were entitled to judgment against

the FDIC on Count V.

          The court  held that  the provisions in  the Master

Documents  made the  Hotel units  "investment contracts"  and

thus securities  within the  meaning of the  securities laws.

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

arrangements made  for the  purchasers, Keezer was  acting as

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

                                                    

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

                             -7-                                          7

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

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

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

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

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

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

requirements.  Id. at 694 n.16.                              

          The court  later  ordered a  rescissionary  damages

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

statute provides for recovery  of "the consideration paid for

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

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

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

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

plaintiff] no longer owns the security."  Id.                                                         

          Specifically, the court  awarded to all  plaintiffs

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

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

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

plaintiffs owed on  the first and second mortgage  notes held

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

cancelled the  plaintiffs' debt on the mortgages.   The court

denied  Lopes and  the Rileys  a rescissionary  damages award

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

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

                             -8-                                          8

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

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

had made on their  mortgage loans plus the amount  they still

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

securities law claims successfully asserted.

          The court gave each  plaintiff the option of either

accepting the rescission award (and the novation) in exchange

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

retaining  the unit  free and  clear.  It  awarded attorneys'

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

Finally, it  ordered that  the plaintiffs' recovery  would be

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

[the Bank] on a pro rata basis."

          The  FDIC  appeals  the rulings  on    1823(e)  and

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

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

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

that any reconveyance be  made to all defendants rather  than

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

district  court's  conclusion  that   the  Hotel  units  were

securities  or  its  conclusion that  Keezer's  actions  were

imputable  to  the  Bank.     The  plaintiffs'  cross-appeals

challenge the  district  court's method  of  calculating  the

rescissionary damages award, its  decision to limit the award

                             -9-                                          9

in accordance with the rule of  ratable distribution, and its

failure to grant fee enhancements.

               II.  Section 1823(e) And D'Oench                                                           

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

claims  under state  securities  law  because the  plaintiffs

cannot   point  to   a   written   agreement  regarding   the

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

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

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

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

plaintiffs  from  asserting  as  either a  claim  or  defense

against   the   FDIC  oral   agreements   or  "arrangements."

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

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

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

                                                    

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

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

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

                             -10-                                          10

          While expansive in  scope,   1823 and D'Oench  only                                                                   

protect  the  FDIC from  claims  or  defenses  based upon  an

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

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

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

been broadly defined to include not only promises to perform,

but   also  misrepresentations  or  material  omissions,  see                                                                         

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

claims  against the FDIC are  not based upon  an agreement or

arrangement.3

          Liability  for failure to register a security under

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

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

that  was  said  or  agreed  to  between  the  Bank  and  the

plaintiffs.   The  act  of  selling the  securities  is  what

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

Bank,  through  Keezer,  sold  the   plaintiffs  unregistered

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

                                                    

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

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

                             -11-                                          11

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

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

          The FDIC's  attempt to shoehorn this  case into the

Supreme Court's Langley decision is unfitting.  Starting with                                   

the observation in Langley that the term "agreement" includes                                      

an  implicit  condition  such   as  the  "truthfulness  of  a

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

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

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

to  the extent that such a warranty can even be characterized

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

depend  upon it.  The  claims come from  an independent legal

obligation  arising  from  the  act  itself  --  the  sale of

unregistered securities -- and not from any warranty that the

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

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

designed to shield the FDIC from hidden  liabilities and that

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

the Bank had  sold securities  to the plaintiffs.   But  that

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

                                                    

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

                             -12-                                          12

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

pooled income arrangement is disclosed in the documents.  The

HHI  Declaration of  Trust  and By-Laws  specifically provide

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

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

Proposal for the conversion  loan states that the condominium

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

purchase  and  sale agreements  incorporate by  reference the

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

documents for the plaintiffs referenced the condominium units

as  collateral.  A review  of the documents  pertinent to the

plaintiffs' promissory  notes would  have revealed the  facts

showing that the Hotel units were pooled income units.

          Perhaps  recognizing this problem  with its general

policy argument, the FDIC presses a slightly refined variant.

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

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

a plaintiff and the Bank that "memorializes any obligation of

the Bank with  respect to  a securities  transaction."   This

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

a written  agreement that  specifically states in  terms that

the condominium units are  securities, rests on the incorrect

assumption that the bank examiners  must be able to determine

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

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

                             -13-                                          13

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

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

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

factual  predicate   for  the  application  of   the  law  is

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

n.28.5    That  the  plaintiffs' claims  rest  on  collateral

documents referenced  in  the  books of  the  Bank  does  not

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

an agreement or arrangement. Id.6                                            

                                                    

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

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

                             -14-                                          14

          The  only  policy consideration  underlying D'Oench                                                                         

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

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

bank's  records either  for  purposes of  liquidation or  for

purposes  of  a purchase  and  assumption  transaction.   See                                                                         

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

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

the  going  concern value  of the  failed  bank and  avoid an

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

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

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

reflect  adequately the  sale of  the Hotel  units as  pooled

income units, these concerns appear to be satisfied.7

                                                    

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

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

                             -15-                                          15

        III.  Sales Of Securities Or Bona Fide Loans?

          The  FDIC also  says that  there  were no  sales of

securities,   arguing  that   these   were  bona   fide  loan

transactions  instead.   We  disagree.   The pertinent  state

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

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

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

          The  record  amply  supports  the  district court's

conclusion  that the  loans  were not  made  in the  ordinary

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

Keezer operated  together in  the marketing and  financing of

these condominium  units to the  plaintiffs.  When  it became

apparent that  the project might fail  because the purchasers

were having trouble getting financing, the Bank departed from

standard  banking  practice  and  offered end  loans  to  the

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

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

                                                    

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

                             -16-                                          16

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

registered and therefore could not be completed in compliance

with the  securities laws.   He nevertheless  participated in

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

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

the interest  of  the  Bank  and its  shareholders  does  not

establish that  the  Bank  was involved  in  bona  fide  loan

transactions.  The substitution was based on  the transfer of

an unregistered  security to the plaintiffs.  Where the loans

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

finance and  market, through  its agent, securities  that the

Bank  knew or  should have  known could  not be  sold without

registration, the loans were not bona fide.

                         IV.  Remedy

          Each  side complains  about  the  district  court's

remedial  order.   Plaintiffs argue  that the  district court

erroneously  ordered that  any recovery  against the  FDIC be

subject to the FDIC's responsibility to distribute the assets

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

the  district court's  method  of  setting the  rescissionary

damages was infirm, that  the award improperly excluded Lopes

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

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

that the  district court  erred  in awarding  post-insolvency

                             -17-                                          17

interest and attorneys' fees  and in requiring the plaintiffs

accepting  the rescissionary damages  to reconvey their units

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

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

unless it  rests on  an erroneous  legal determination.   See                                                                         

Downriver Community Federal Credit  Union v. Penn Square Bank                                                                         

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

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

          A.   Ratable Distribution                                               

          The FDIC, as receiver, is authorized to  distribute

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

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

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

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

                                                    

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

                             -18-                                          18

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

that is  to say,  proportionally.  To  be proportionate  they

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

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

is  not absolute,  the  statutory  framework  is  "distinctly

unfriendly  to  the  recognition   of  special  interests  or

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

quotation omitted).

          A plaintiff seeking an  exception from the pro rata

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

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

preference might be warranted where  a plaintiff is a secured

creditor  and  is  seeking  to  enforce  a  lien  against the

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

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

unsecured creditor, can show an entitlement to a constructive

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

plaintiffs can  show neither, their awards are subject to pro

rata distribution.

          None  of the  plaintiffs has  a secured  claim, and

they argue to no  avail that they have claims  entitling them

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

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

particular harm that is not shared by substantially all other

creditors, and that granting the relief would not disrupt the

                             -19-                                          19

orderly  administration  of the  estate.   Id.   The district                                                          

court found, however, that  the defendants committed no fraud

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

generally a  prerequisite to the formation  of a constructive

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

preference   would    not   interfere   with    the   orderly

administration of  the estate.   The district  court properly

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

distribution rule.

          B.   Rescissionary Damages Award                                                      

          Rescissionary  damages  against  the  FDIC  and the

other defendants, jointly and  severally, were awarded to all

plaintiffs except  Lopes and the Rileys.   The district court

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

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

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

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

district  court  used  an  incorrect  method  of  calculating

                                                    

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

                             -20-                                          20

damages,  and  that the  district  court  improperly excluded

Lopes  and the  Rileys from  the rescissionary  damages award

that ran against the FDIC.

          1.  Method of calculation.                                               

          The district  court ordered an award of rescission,

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

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

interest  and other  expenses  paid by  the plaintiffs  minus

income received and the  unpaid debt on the first  and second

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

court  then subtracted the  unpaid mortgage debt  owed to the

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

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

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

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

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

outright cancellation of the notes.

          Plaintiffs  argue that  the  district court  should

have awarded them the entire amount of consideration paid for

the  units,  including  the  unpaid portions  of  the  loans,

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

portions of the  loans.   They also argue  that the  district

court should  also have  allowed the  plaintiffs to  keep the

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

                             -21-                                          21

the  FDIC that would be left unpaid because of the insolvency

of the Bank.

          As a  practical matter, there  is little difference

between what the district court ordered (return of principal,

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

the  loans) and  what the  plaintiffs are  requesting (entire

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

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

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

solvent defendant, would fully  fund rescission and return to

Plaintiffs  their full damages in exchange for title to their

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

calculation makes a difference  because the Bank is insolvent

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

Plaintiffs  say their method allows them to keep the units as

a setoff and thus  make up any shortfall between  the damages

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

receive.  We disagree.

          A setoff is often  justified where a plaintiff owes

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

that  debt  without  being  allowed to  recover  a  debt  the

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

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

typically employed where a depositor, who also owes  money to

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

                             -22-                                          22

deposited.  It is employed where  the parties have reciprocal

or mutual obligations to one another.

          The  plaintiffs  have  tried  to  characterize  the

obligations   between  the   parties  as  being   mutual  and

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

argument,  the offsetting  obligations would  exist were  the

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

for  the entire amount of the loans and the amount plaintiffs

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

FDIC and HHI the amounts the plaintiffs owe on the promissory

notes.    With such  offsetting  obligations, the  plaintiffs

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

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

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

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

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

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

(internal quotations omitted)).

          This  argument,  however, is  incongruous  with the

plaintiffs' theory of recovery in this case.  Plaintiffs here

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

the  restitution by  the  defendant of  the ill-gotten  gains

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

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

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

                             -23-                                          23

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

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

restitution  for  a  benefit  conferred  upon  another  in  a

transaction is  dependent upon  his  return of,  or offer  to

return,  anything  the  person  received as  a  part  of  the

transaction).  Thus, under the applicable statute, rescission

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

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

77l.

          Since  tender  of  the  unit  is  a  condition  for

triggering the  obligation of  the Bank to  repay the  amount

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

as setoffs.  The  Bank owes the plaintiffs nothing  until the

plaintiffs relinquish  their rights to  the units.   And once

the plaintiffs  no  longer  have  rights to  the  units,  the

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

                                                    

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

                             -24-                                          24

          Although  the  general   method  employed  by   the

district  court in reaching  the rescissionary  damages award

was  appropriate,  one  aspect  of  the  order  needs  to  be

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

amounts the plaintiffs owed on  the first and second mortgage

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

"substituted contract that  includes as a  party one who  was

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

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

order,  however,  does  not  provide for  a  substitution  of

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

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

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

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

that  a  substitution  was  intended.   Because  an  outright

cancellation  of the  notes may  render unclear  the relative

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

the  order  which "novates"  the  notes  along with  granting

rescissionary  damages and  remand with  directions  that the

district  court  order  a  novation  whereby  the  "judgment"

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

obligors  on the  notes  secured  by  the mortgages  and  the

                                                    

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

                             -25-                                          25

plaintiffs are discharged of any liability on the notes.  Any

units eventually tendered to the judgment defendants would be

subject to the mortgages.11

          2.   Lopes and the Rileys.                                               

          Lopes and the Rileys were denied any relief against

the  FDIC because  they  had given  mortgages and  promissory

notes  to  disinterested  third  party banks  and  the  court

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

the  district court  correctly concluded  that it  should not

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

improperly  denied Lopes and the Rileys rescissionary damages

against the FDIC.  The only

difference  between  Lopes  and  the  Rileys  and  the  other

plaintiffs is  that Lopes  and the Rileys  paid substantially

more  cash to the defendants  when purchasing the  units.  It

was  not the entire price  because both Lopes  and the Rileys

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

Rileys  were  still  purchasers of  unregistered  securities.

They  should therefore be able  to recover from  the FDIC and

                                                    

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

                             -26-                                          26

the other  defendants the  consideration paid for  the units.

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

record does  not clearly  reveal the consideration  Lopes and

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

should hold  a hearing  to determine the  consideration Lopes

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

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

subject to the ratable distribution rule.

          Lopes'  and the Rileys'  claims do raise additional

wrinkles for consideration on remand.   The novation given to

the plaintiffs  who borrowed  from the Bank  was an  implicit

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

Rileys are  not entitled to such an  implicit setoff because,

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

would  be   no  mutuality  of  obligation.     Absent  mutual

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

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

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

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

insolvency.

          If Lopes and  the Rileys convey their  units to the

defendants,  they  will  remain  liable on  their  promissory

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

banks will refuse to  allow Lopes and the Rileys  to reconvey

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

                             -27-                                          27

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

any  terms provided in  their loan agreements  with the third

party banks.   The district court may  also consider treating

such a situation like that in which a purchaser cannot tender

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

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

          C.   Interest                                   

          1.   Post-insolvency interest.                                                   

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

on the consideration paid  for the security from the  date of

payment of  that consideration.   The district  court awarded

$200,485  statutory interest  to the  plaintiffs  against the

FDIC,  Keezer,  Chaban  and  HHI.    That  amount  represents

interest  from the  date the  plaintiffs made  each of  their

respective  mortgage  payments until  February 11,  1994, the

date the plaintiffs submitted their damages motion.  The FDIC

contends  that  the  interest  award  against  it incorrectly

includes interest  accruing following the  Bank's insolvency,

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

ratable  distribution  rule  precludes  such  post-insolvency

interest.12  We agree. 

                                                    

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

                             -28-                                          28

          As  unsecured  creditors,   the  plaintiffs   share

ratably with all other "unsecured creditors, and their claims

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

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

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

itself, interest accruing after  the insolvency should not be

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

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

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

U.S. 919 (1978).14

                                                    

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

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

                             -29-                                          29

          The  FDIC  does not  challenge  the  award of  pre-

insolvency  interest, but  says  the district  court did  not

distinguish  between the  portion  of the  award representing

pre-insolvency  interest and  the portion  representing post-

insolvency interest.   We prefer to allow  the district court

to  determine the  appropriate amount  on remand  rather than

attempt to do it here.

          2.   Lopes and the Rileys.                                               

          Lopes  and the Rileys  were erroneously  treated in

the interest  calculation and that award  should be adjusted.

The   $200,485  interest   award  to  the   other  plaintiffs

apparently includes  $20,679.93 of  interest on the  mortgage

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

of  interest on the payments the Rileys made.  Those interest

amounts were calculated according to the same method employed

for  the plaintiffs who borrowed from the Bank:  the interest

was calculated  from the  date each loan  installment payment

was  made.  This method  was inappropriate for  Lopes and the

Rileys  since,  with  respect  to  the  Bank  and  the  other

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

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

ought to  have started accruing on the  entire purchase price

                                                    

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

                             -30-                                          30

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

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

Because  we  cannot  determine  that amount  on  the  present

record,  on remand  the district  court should  calculate the

appropriate  interest   to  be  awarded  to   Lopes  and  the

Rileys.15

          D.   Attorneys' Fees                                          

          1.   The award.                                    

          The FDIC  argues that the award  of attorneys' fees

under section  410(a) violates the  ratable distribution rule

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

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

194 and  case law construing that provision.   See Interfirst                                                                         

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

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

          A  claim  is   provable  if  at  the  time  of  the

insolvency  there is a present cause of action.  First Empire                                                                         

                                                    

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

                             -31-                                          31

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

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

which  at   the  commencement  of   [equitable  receivership]

proceedings  furnish   a  present   cause   of  action   [are

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

pursuing their claims against  the Bank at the time  the Bank

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

for rescission  but also  for attorneys' fees.   Accordingly,

the claims for attorneys' fees were provable.

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

argues  that attorneys'  fees are  not provable  here because

there  were  no  contractual provisions  for  attorneys' fees

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

the  absence of  contractual contingency  fee provisions  for

attorneys' fees  before the  insolvency shows that  no claims

for attorneys' fees existed before the insolvency.  We reject

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

not exist prior to the insolvency because the contingency fee

agreement between the plaintiffs  and their attorneys was not

executed  until after the insolvency.  The FDIC is aware that

the plaintiffs had an obligation  to pay their attorneys, and

in fact did pay their attorneys substantial fees, during  the

period  prior  to the  insolvency.    Plaintiffs' claims  for

                             -32-                                          32

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

well before the insolvency.16

          The  FDIC  also  argues  that the  claims  are  not

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

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

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

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

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

ratable  distribution.  "Though  related concepts,  whether a

claim  is   provable  under   section  194,  and   whether  a

distribution  is 'ratable'  represent two  entirely different

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

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

          The existence  of a collateral fund,  while perhaps

relevant  to  ratable   distribution,  is  not  relevant   to

determining provability;  and  the FDIC's  argument that  the

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

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

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

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

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

                                                    

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

                             -33-                                          33

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

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

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

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

attorneys' fees is a recognized method of computation.

          Nevertheless  the  attorneys'  fees award  requires

modification.   The  rule of  ratable distribution  "requires

that dividends be declared proportionately upon the amount of

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

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

has  accrued at  the  time of  insolvency  is the  basis  for

apportionment  of   dividends.     See  Kennedy  v.   Boston-                                                                         

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

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

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

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

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

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

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

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

the  date  of  the  insolvency,  and  make  the  distribution

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

unsecured creditor depends upon whether the fees accrued pre-

insolvency or  whether they accrued  post-insolvency.   Those

incurred prior to the  insolvency are recoverable while those

                             -34-                                          34

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

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

attorneys' fees not available).

          We believe this situation  is not only analogous to

requests  for interest  and  other costs  of collection,  see                                                                         

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

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

(treating  interest  and  attorneys'  fees   under  the  same

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

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

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

is  analogous   to  requests  for  attorneys'   fees  in  the

bankruptcy   context.     Pre-petition  attorneys'   fees  of

unsecured creditors against an insolvent debtor are generally

allowed  under   the  bankruptcy  code  to   the  extent  the

applicable   state   law  so   provides,   and  post-petition

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

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

Fla.  1995) (denying  under  the  bankruptcy  code  unsecured

creditors'   attorneys'   fees  incurred   post-petition  but

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

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

Cir.  1982) (unsecured creditor  can recover collection costs

including counsel  fees where such costs  were a specifically

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

                             -35-                                          35

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

of the  insolvency but  are not entitled  to attorneys'  fees

following  the  insolvency.17    Because  we  are  unable  to

determine the amount of attorneys' fees accruing prior to the

insolvency, we  leave that inquiry  to the district  court on

remand.

          2.  Fee enhancements.                                          

          The  plaintiffs  argue that  they were  entitled to

either a contingency fee enhancement or a results enhancement

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

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

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

          As  the  plaintiffs  concede, the  argument  for  a

contingency  enhancement in a  statutory fee-shifting context

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

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

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

(generally  disapproving  of  contingency enhancements  under

federal fee-shifting statutes).18   The Massachusetts  courts

have  stated that where the  federal and state  law causes of

                                                    

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

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

                             -36-                                          36

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

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

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

The state law  counterpart should not  be construed to  allow

such an  enhancement absent direction from  the state courts.

Plaintiffs have  cited no state cases  allowing a contingency

enhancement for  a successful securities law  action based on

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

decline  to predict  the creation  of such  a state  law rule

here.

          A  results enhancement is also inappropriate.  Such

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

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

The rates provided to the  attorneys in this case "adequately

reflected the lawyers' superior skills and the superb results

obtained."  Id.                           

          E.  Reconveyance to Defendants                                                    

          In  its damages  order the district  court provided

that plaintiffs accepting the  rescission award reconvey  the

units  to all  the defendants.   The  FDIC contends  that the

district court  abused its  discretion in ordering  the units

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

The  plaintiffs, who  presumably  are indifferent  as to  who

among  the  defendants  gets   the  units,  have  not  argued

otherwise.    Where the  debts owed  on  the units  have been

                             -37-                                          37

novated  in the  manner  prescribed here,  conveyance of  the

units  solely to the Bank  might prejudice the  rights of the

other  defendants.   The  district court  did  not abuse  its

discretion on this matter.

                        V.  Conclusion

          For the  foregoing reasons, we affirm  the district                                                           

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

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

discussed above, for further proceedings consistent with this

opinion.  It is so ordered.                                      

                             -38-                                          38
