
USCA1 Opinion

	




                            UNITED STATES COURT OF APPEALS                                FOR THE FIRST CIRCUIT                                 ____________________        No. 93-1385                                MARUHO COMPANY, LTD.,                                Plaintiff, Appellant,                                          v.                                     MILES, INC.,                                 Defendant, Appellee.                                 ____________________                     APPEAL FROM THE UNITED STATES DISTRICT COURT                          FOR THE DISTRICT OF MASSACHUSETTS                       [Hon. Rya W. Zobel, U.S. District Judge]                                           ___________________                                 ____________________                                        Before                                 Breyer, Chief Judge,                                         ___________                            Aldrich, Senior Circuit Judge,                                     ____________________                           and McAuliffe,* District Judge.                                           ______________                                 ____________________            Alan R.  Hoffman with whom  John R. Cavanaugh  and Lynch,  Brewer,            ________________            _________________      _______________        Hoffman & Sands were on brief for appellant.        _______________            Sydelle Pittas  with whom  Powers & Hall,  P.C. was  on brief  for            ______________             ____________________        appellee.                                 ____________________                                  December 29, 1993                                 ____________________        ______________________        *Of the District of New Hampshire, sitting by designation.                       BREYER, Chief  Judge.  Miles,  Inc., invented  and                               ____________             patented a  pain-killing drug  called Xorphanol.   In  1984,             Miles gave Pars Pharmaceutical Co. the                        exclusive right throughout  the world to                       make, have made, use and sell             Xorphanol,  in  return for  which  Pars  promised  to pay  a             royalty and                       to  use reasonable  efforts directly  or                       through  its  subcontractors  to develop                       one or more compounds . . . to the point                       of  [obtaining] . .  . government .  . .                       approval   for  .   .  .   [Xorphanol's]                       therapeutic use . . . .             In 1988,  Pars sublicensed  the plaintiff  in this  lawsuit,             Maruho, Inc., to  develop Xorphanol "compounds" and  to sell             them in Japan.                       According to  Maruho,  Pars misled  it during  the             sublicense  negotiations.   Although  Maruho asked  Pars  to             produce all relevant studies, Pars  did not tell it about 1)             an important  negative study  conducted by the  Charterhouse             Research Unit  of a well-known British  pharmaceutical firm,             Glaxo,   Inc.,  and  2)  a  less  important  negative  study             conducted by the Director of the Stanford Pain Clinic.  Both             of these studies indicated that Xorphanol, while effectively             reducing pain,  also caused  adverse side  effects, such  as             headaches, drowsiness, dizziness, and euphoria.  Maruho says                                         -2-                                          2             that, had  it seen these  studies, it would not  have bought             the sublicense.  In its view, Pars is guilty of fraud.                       Maruho, however, seems unlikely  to get its  money             back  from Pars,  for Pars  is  in the  midst of  bankruptcy             proceedings.   Maruho  instead  seeks  recovery from  Miles,             Xorphanol's  original  licensor;  and,  in this  (diversity-             based)  lawsuit against Miles, it pleads various theories of             state law.  The district court, after examining the evidence             proffered by  the  parties,  granted  summary  judgment  for             Miles.   Maruho  appeals.   We  affirm the  district court's             judgment.                                          I                             Maruho's Procedural Argument                             ____________________________                       At  the outset, Maruho  raises a procedural point.             It  says  that  the district  court  improperly  converted a             motion by Miles for judgment  on the pleadings, Fed. R. Civ.             P.  12(b)(6), into  a motion  for summary judgment,  Fed. R.             Civ. P. 56, without giving Maruho a "reasonable opportunity"             to present "pertinent  material." See Fed. R. Civ.  P. 12(b)                                               ___             (court shall  treat motion  for judgment  on pleadings  as a             motion  for  summary  judgment  where  "matters outside  the             pleading" are  presented to  and accepted  by the  court and                                         -3-                                          3             "reasonable opportunity" to  present "pertinent material" is             "given").                        The  record,  however, does  not  support Maruho's             claim.   Miles' motion  gave Maruho  adequate notice  of the             risk  of summary judgment, for Miles  entitled it "Motion to             Dismiss  or,  in  the  Alternative,  for  Summary  Judgment"                           _____________________________________________             (emphasis added).   We concede that Maruho  immediately told             the  court that it  thought Miles' motion  requested summary             judgment on only one count.  But Maruho also told the court,                              ___             in writing at the same time, that it would assume "that  all                                                                      ___             of Miles' contentions  are asserted under both  Fed. R. Civ.             P.  12  and   [summary  judgment  rule]  56"   (emphasis  in             original).  Maruho then presented to the court three volumes             of  documents, which it  titled "Plaintiff  Summary Judgment             Record."  In  response to questioning by this  court at oral             argument,  Maruho could not  identify any piece  of evidence             that it had  lacked the opportunity to submit.   Given these             circumstances, Maruho converted Miles'  motion into a motion                            ______             for summary judgment  on all counts by  presenting pertinent             material outside the pleadings; and Maruho not only had, but             also  took  advantage  of,  a  "reasonable  opportunity"  to             present all "pertinent"  material.  See In re  G.& A. Books,                                                 ___ ____________________             Inc., 770 F.2d 288, 294-95 (2d Cir. 1985), cert. denied, 475             ____                                       ____________                                         -4-                                          4             U.S.  1015 (1986).  The district court was therefore legally             entitled to treat Miles' motion  as one for summary judgment             on all counts.                                            II                          Miles' Participation in the Fraud                          _________________________________                       Maruho  argues that Miles  is liable as  an actual             participant  in Pars' fraud, either by "aiding and abetting"             Pars'  fraud, by  acting  "in  concert"  with  Pars,  or  by             engaging in an  "unfair or deceptive act or  practice."  See                                                                      ___             Mass. Gen. L. ch. 95,   11; Kyte v. Philip Morris, Inc., 556                                         ____    ___________________             N.E.2d  1025 (Mass. 1990);  Restatement (Second) of  Torts                                           ______________________________             876(a),  (b) (1979)  [hereinafter "Restatement  (2d)"].   It                                                _________________             says that, in the circumstances, a showing that Miles either             1) actually  knew about the  fraud, or 2) should  have known                ______________                         __________________             about the fraud,  is sufficient to trigger  Miles' liability             as an actual participant.   We shall consider, in turn, each             of the two branches of Maruho's argument.                       1.   Actual  knowledge.    We  shall  assume,  for                            __________________             argument's sake,  that a  finding that  Miles actually  knew             about  Pars'   fraud   would   trigger   Miles'   liability.             Nonetheless, like the district court, we do not believe  the             record would permit a reasonable  juror to make that factual             finding.                                           -5-                                          5                       Maruho says that a juror might find Miles' "actual             knowledge" by inferring, from Miles' conceded knowledge that             Maruho  was willing  to pay $3  million for  the sublicense,             that  Miles  must have  known  that  Pars hid  the  negative             Xorphanol  studies from Maruho.  Otherwise, why would Maruho             pay so much for so little?   To make the inference, however,             requires  some kind  of  propositional  link,  such  as,  "a             knowledgeable firm would likely not have paid $3 million had             it known about the studies."  The problem for Maruho is that             this link is missing.                       We agree with Maruho that a reasonable juror could             believe that Miles knew the following:                       a.   After  obtaining its  license  in 1984,  Pars                            sublicensed Glaxo,  Inc., a  highly reputable                            British  firm,   to  prepare   Xorphanol  for                            marketing.  In 1986, Glaxo, after paying Pars                            more than  $1.5 million  for the  sublicense,                            terminated the agreement.                       b.   Glaxo  cancelled  the  sublicensing agreement                            after its  Charterhouse Research  Unit tested                            Xorphanol  by  giving ten  volunteers  single                            doses (each in an amount growing from 0.25 mg                            to 4.0 mg  over the course of  several days).                            The  Charterhouse study  showed that  many of                            these  volunteers  suffered  some significant                            adverse side  effect not  suffered when  they                            took a placebo.                       c.   Earlier, in  1985, the  Director of  Stanford                            Pain Clinic  had conducted a  multidose study                            of Xorphanol, giving volunteers several doses                            of 2 mg and 4 mg over several  days.  More of                            these  volunteers  suffered  some significant                                         -6-                                          6                            adverse side  effect than those  who received                            comparable doses of codeine,  a commonly used                            pain killer.                       d.   After  Glaxo's 1986  termination, Maruho,  in                            mid-1987,  agreed to pay  Pars $3 million for                            Japanese sublicensing rights.                       The record,  however,  also  shows  the  following             facts, which are not significantly disputed:                       a.   Xorphanol  was  potentially a  very  valuable                            product.  The market for pain killers amounts                            to   several   billion    dollars   annually.                            Xorphanol  seemed to  have  the pain  killing                            properties of  a narcotic,  such as  codeine,                            without  any  addictive quality.    Financial                            newspapers   spoke   initially   of  expected                            "annual  worldwide"  Xorphanol "sales  of  at                            least $50-100 million."                         b.   Miles,   after    receiving   "updated    IND                            information on Xorphanol," (which Maruho says                            included  the   Stanford,  as  well   as  the                            Charterhouse, studies),  wrote Pars  a letter                            in which it basically accepted the  fact that                            the  Charterhouse  study  was  negative,  but                            nonetheless  pointed   to  other,   positive,                            studies;  urged   Pars  to   perform  further                            studies; noted the large sales of combination                            and  other  pain killers;  and  concluded, in                            reference to Xorphanol, that "there is  still                            a place  for  a moderate  to  strong,  orally                            active,   non-dependence   producing"    pain                            killer.                       c.   Other studies in the record show Xorphanol as                            having highly desirable pain-killing effects,                            with the frequency  of side effects depending                            upon the study and the dose.  The studies all                            make  clear  that  codeine  and  other   pain                            killers  also have  side  effects, and  that,                            since   many   of   the   side  effects   are                            subjective, placebos have them as well.                                         -7-                                          7                       d.   The experts  differed about  the significance                                         ________                            of the Charterhouse study,  with at least one                            prominent expert  finding  that  it  was  not                            critically  important  and  did  not  warrant                            abandoning the Xorphanol project.   Dr. Louis                            Lasagna, the Dean of Tufts University  School                            of Graduate Biomedical Sciences, examined the                            Charterhouse study and concluded that:                            1)   "[T]here  is  nothing  in  the                                 Charterhouse   data   that  is                                 disturbing about the  0.25 and                                 0.5 mg doses,  and even at the                                 1.0 and 2.0 mg doses, there is                                 no   reason    for   excessive                                 anxiety about adverse effects,                                 if one compares the results on                                 active drug  with the  results                                 with placebo."                            2)   "There  is  nothing   in  this                                 report,  in  my  opinion, that                                 would  call  for   a  halt  to                                 clinical testing  of Xorphanol                                 at doses up to (and including)                                 2 mg."                            3)   "In my view it is premature to                                 make  a  judgment  as  to  the                                 clinical utility and safety of                                 this  drug in  the absence  of                                 more clinical trial data."                       The upshot is  a record that, even  when viewed in             Maruho's  favor, shows  (1) a  product  potentially worth  a             great deal of  money; (2) Miles'  belief, after learning  of             the negative studies, that Xorphanol was still valuable; (3)             experts (at  Glaxo) who thought that Xorphanol was not worth             developing;  but (4)  a respected  expert  who thought  that             Xorphanol  was still worth developing.  Had Maruho presented                                         -8-                                          8             favorable  expert  testimony  on  the  relevant  question --             whether the hidden studies were conclusive to the point that             a  reasonable  pharmaceutical executive  would  have thought             Xorphanol had little or no value --- the jury might have had             a basis for reaching a favorable conclusion about what Miles             knew.  But Maruho presented  no such expert testimony.  And,             our  lay reading  of  the  record,  including  the  relevant             studies,  leads inexorably  to  the conclusion  that experts             differed  in their views about Xorphanol's value, with Miles             indisputedly arguing for further development.  That fact, in             turn, means that Miles need  not have concluded, from the $3             million payment,  that Pars  must have  hidden the  studies.             And, a reasonable jury could not conclude that Miles in fact                                                                  __ ____             knew about Pars' misconduct.                       2.  "Should have known."  Maruho argues that Miles                            _________________             is  liable as  long as  it "should  have known"  about Pars'             fraud.  The record, however, even when interpreted favorably             to Maruho, supports  the factual part of this  claim only to             the point  where a  reasonable juror might  find that  Miles             should have  been suspicious --  and no further.   And, that             factual  finding does  not provide  sufficient  basis for  a             legal finding that Miles is  liable as an actual participant             in the fraud.                                          -9-                                          9                       First,  insofar as  Maruho's "actual  participant"             theories  rest  upon a  tortfeasor's  intentional action,  a                                                   ___________             finding about what Miles "should have known" is insufficient             for  a finding  of an  actual unlawful  intent, whether  one             defines  that "intent"  in  terms of  a  "purpose" or,  more             broadly,   as   a  "belie[f]   that  the   consequences  are             substantially   certain   to   result   from   [the   act]."             Restatement (2d)   8A (1965).  The Massachusetts courts have             ________________             made clear that  a defendant "aids  and abets" a  tortfeasor             only  if, at the  least, the defendant  actually knows about                                                              _____             "its   substantial,   supporting   role   in   an   unlawful             enterprise."   Kyte, 556  N.E.2d  at 1028.   Similarly,  the                            ____             Massachusetts courts  have held  that a  defendant acts  "in             concert" with a tortfeasor only if the defendant "agrees" to             work toward the unlawful result.  See, e.g., id. at 1027-28;                                               ___  ____  __             Gurney v. Tenney, 84 N.E.  428 (Mass. 1908).  Without actual             ______    ______             knowledge that  Pars was  hiding negative  tests, Miles  can             neither  have  known  of Pars  unlawful  (i.e.,  fraudulent)             objective nor have agreed to help achieve it.                       Second,  insofar  as  Maruho  tries  to  predicate             liability upon Miles' negligence, a jury could find, at  the             very worst,  nothing more  than a  negligent failure  to act                                                          _______             upon a suspicion, that is,  an omission on Miles' part.   To                                         -10-                                          10             predicate tort liability upon a negligent omission, one must             find   a  special   relationship,   between  defendant   and             plaintiff, that imposes  a duty upon  the defendant to  take             positive  steps to protect  the plaintiff.   See Restatement                                                          ___ ___________             (2nd)    291  comment f (negligent "nonfeasance"  requires a             _____             special relationship), 314  & comments a, c  (1965) (stating             the general rule that liability  for failure to take  action             for  the   aid  or  protection  of  another  is  limited  to             situations in which  there exists some  special relationship             between the  parties).   We are not  aware of  any authority             suggesting      that      the       simple      relationship             "licensor/sublicensee"  automatically,  by  itself,  creates                       ___             such a duty.  The  exceptional situations in which authority             supports the existence of such  a duty are not present here.             See id.    314A-324A (listing exceptions to the general rule             ___ __             of  non-liability, none  of which encompasses  the licensor-             sublicensee relationship).  Finally,  Maruho has not  argued             any other ground  that might  support the  existence of  the             necessary  duty.  We therefore agree with the district court             that no such duty existed.                       3.   Maruho argues that Miles has violated chapter             93A  of the  Massachusetts General  Laws by  engaging in  an             "unfair or  deceptive act or  practice."  Mass. Gen.  L. ch.                                         -11-                                          11             95,    11.   But,  to prove  a violation,  Maruho must  show             conduct that involves  some kind of "rascality."   Tagliente                                                                _________             v. Himmer, 949 F.2d 1, 7 (1st  Cir. 1991).  Maruho has cited                ______             no  authority that  would  justify such  a  finding where  a             licensor  has only  suspicion, not  actual  knowledge, of  a             licensee's improper conduct,  and where the licensor  has no             duty  to  act  to  protect   the  potential  victim.     The             circumstances simply do not indicate "rascal-like"  behavior             on  Miles'  part.     We  therefore   do  not  believe   the             Massachusetts courts would find a violation of the chapter.                                         III                                 Vicarious Liability                                 ___________________                       Maruho  says that, even if Miles is without fault,             it is  nonetheless "vicariously"  liable for  the harm  Pars             caused, either  because Pars  was Miles'  agent, or  because             Miles and Pars were engaged  in a "joint venture" (or "joint             enterprise").    The  theories of  vicarious  liability that             Maruho  argues, however,  all require  Maruho  to show  that             Miles  had  the  legal right  to  control  Pars' negotiating             activity.  See, e.g.,  Lyon v. The Ranger III, 858  F.2d 22,                        ___  ____   ____    ______________             27  (1st   Cir.   1988)  (joint   enterprise  exists   where             participants "'ha[ve] an  equal right to direct  and control             the conduct  of the  other[s] concerning  acts or  omissions                                         -12-                                          12             which  cause, or contribute  to the causation  of, injury.'"             (quoting Adams  v. Dunton,  187 N.E.  90, 92  (Mass. 1933));                      _____     ______             Payton v.  Abbott Labs,  512 F. Supp.  1031, 1036  (D. Mass.             ______     ___________             1981) (joint  venture requires  "joint [but  not necessarily             equal]  control of the objectives of  the undertaking and of             the  means  of  achieving  those  objectives");  Restatement                                                              ___________             (Second) of Agency   1 comments a, b (1958); W.  Page Keeton             __________________             et al., Prosser and Keeton on the Law of Torts   72, at 519-                     ______________________________________             20  (5th ed. 1984) (joint enterprise requires something that             shows a mutual right  of control).   Yet Maruho can make  no                            _____             such showing here.                       The licensing agreement between Miles and Pars did             not give  Miles any right  to participate in or  control the             negotiation and  granting of  sublicenses.   And the  record             provides  no evidence of any  statement, or action, by Miles             that   suggests  any  right  to  control  Pars'  negotiating             activity.   We concede  that, sometimes,  a  jury might  use             evidence  of  actual control  as a  basis for  inferring the             existence of a  corresponding legal right.  But  here, there             was no actual  control.  Miles did  not even know that  Pars             and   Maruho  were  negotiating   a  sublicense   until  the             negotiations were already  roughly seven months old;  and it             first learned the terms of  the proposed contract -- such as                                         -13-                                          13             the fee  Maruho was to pay for the  sublicense -- only a few             weeks before the contract was scheduled to take effect.                         Maruho  nevertheless  argues   that  Miles'  legal             ability to  grant, or deny,  Pars a needed extension  of the             basic license permitted Miles to influence the terms  of, or             to benefit from, the sublicense.   But, we have no reason to             believe that  the  simple, unexercised,  practical power  to             influence  a negotiation could, by itself, create an agency,             or joint  venture  (or  enterprise),  for  otherwise,  every             negotiator  would discover himself the agent of, or venturer             with,  any  of the  many  persons  who might  influence  the             negotiations.   We are not  surprised that we could  find no             legal authority supporting such a  proposition.  We add that             the simple  fact that Miles  might have benefitted  from the             sublicense  (through  the royalty-sharing  provision  in the             Miles/Pars   license   agreement)   does  not   make   Miles             vicariously  liable for Pars'  conduct.  See,  e.g., Payton,                                                      ___   ____  ______             512 F. Supp.  at 1036 (recognizing  that profit sharing  and                                                                      ___             joint  control are  central to  a  joint venture);  Stock v.                                                                 _____             Fife, 430 N.E.2d  845, 847-48 (Mass. App.  Ct. 1982) (absent             ____             joint control, a  common (pecuniary) interest is  not enough             to establish a joint enterprise).                                           IV                                         -14-                                          14                                  Unjust Enrichment                                  _________________                       Maruho argues  that Miles was  "unjustly enriched"             by having received a share of the $3 million sublicense fee,             and that  it must  therefore "return"  the share  to Maruho.             See Restatement of Restitution   1 (1937) ("A person who has             ___ __________________________             been unjustly enriched at the expense of another is required             to make restitution to the other.").  The controversial part             of this argument,  however, lies in its premise.   Did Miles             ever receive a portion of the $3 million?                       The  relevant facts are not in dispute.  Miles and             Pars disagreed about  whether Miles was entitled  to some of             Maruho's $3  million sublicense fee.  Miles  argued that the             fee was a "royalty,"  in which case it was  entitled to one-             half.  Pars argued that  the entire sum represented a return             of Xorphanol development  expenses, in which case  Miles was             entitled to nothing.   Miles and Pars then  agreed that Pars             would deposit $1,350,000 of  the fee into an escrow  account             and retain  the remainder.   The  escrow agreement  provided             that the money "shall remain in escrow" until                         a.  The Parties  . .  .  either reach  a                       satisfactory  agreement  as  to  .  .  .                       distribution; or                       b.  A  final   decision  is  reached  by                       arbitration . . .; or,                                          -15-                                          15                       c. In the event the Parties cannot agree                       to arbitration, a final  decision on the                       distribution .  . .  is  rendered by  an                       appropriate court . . . .             Eventually,  Miles decided not  to bring a  legal proceeding             and permitted Pars to take the money from escrow.                            For  Maruho to obtain "restitution" from Miles, it             must show,  at a minimum,  that Miles had "possession  of or             some   other  interest  in"  this  money.    Restatement  of                                                          _______________             Restitution    1  comment  b.   But  Miles  never  did  have             ___________             possession  of the money.  The  interest that it had (in the             absence  of an  agreement  from  Pars  as  to  distribution)             consisted of little more than a  right to bring a lawsuit to             obtain money to which its legal right (the record indicates)             was highly uncertain.  And,  since Pars would not agree, the             escrow served  only to  isolate and protect  the money  from             other potential Pars creditors while  Miles made up its mind             whether or not to bring suit.                       This kind of  interest -- at best  analogous to an             attachment -- seems to us too slight to count as the kind of             benefit that  might support  a suit  for restitution.   This             undefined interest is not analogous to that of a joint owner             in a  joint bank account.  We can find no convincing analogy             to any other kind of joint ownership.   Nor does the record,             read favorably to  Miles, show anything of value  that Miles                                         -16-                                          16             received for releasing  the escrow.  (It shows  no "promise"             by  Pars to  engage in  development work  that it  would not             otherwise  have undertaken.)   The  record  shows only  that             Miles, for  a time, thought it had a  right to the money and             convinced Pars (in part through  its power to extend, or not             to extend, the  basic license) to place the  money in escrow             while Miles decided  whether or not  to sue.  (If  there was             some more  tangible interest here,  Maruho at least  had the             burden of showing just what  it consisted of, but Maruho did             not even try to do  so.)  We are not surprised that we could             find  no authority supporting  the proposition that  such an             "interest"  falls  within  the scope  of  the  Restatement's             description  of   "enrichment,"  while  we   found  contrary             authority directly on point.  Gilpin v. AFSCME, AFL-CIO, 875                                           ______    _______________             F.2d 1310, 1314-15  (7th Cir.), cert.  denied, 493 U.S.  917                                             _____________             (1989).  The authority that Maruho cites, Gill Equipment Co.                                                       __________________             v. Freedman, 158 N.E.2d 863 (Mass. 1959), says that a person                ________             may be "unjustly enriched"  by money that he  does "possess"                                                           ____             under  a constructive trust created by his promise to assume             "personal responsibility," which trust he  violates by later              ________ ______________             giving the money to another.  That case is not on point.                       For  these reasons  the  judgment of  the district             court is                                         -17-                                          17                       Affirmed.                       ________                                         -18-                                          18
