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,

Brew

________________
_________________
____________
Hoffman & Sands were on brief for appellant.
_______________
Sydelle Pittas with whom Powers & Hall, P.C. was on brief
______________
____________________
appellee.
____________________
December 29, 1993
____________________
______________________
*Of the District of New Hampshire, sitting by designation.

BREYER, Chief Judge.

____________
patented a

pain-killing drug

Miles,

Inc., invented

called Xorphanol.

In

and
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

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]

to pay

therapeutic use . . . .
In 1988,

Pars sublicensed

Maruho, Inc., to

the plaintiff

in this

lawsuit,

develop Xorphanol "compounds" and

to sell

them in Japan.
According to
sublicense

Maruho,

negotiations.

Pars misled

Although

produce all relevant studies, Pars

an important

negative study

Research Unit
Glaxo,

Inc.,

Maruho asked

2)

conducted by the

less

the

Pars

to

did not tell it about 1)

of a well-known British
and

it during

Charterhouse

pharmaceutical firm,

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

headaches, drowsiness, dizziness, and euphoria.

as

Maruho says

-22

that, had

it seen these

the sublicense.

studies, it would not

have bought

In its view, Pars is guilty of fraud.

Maruho, however, seems unlikely

back

from Pars,

proceedings.

Maruho

Xorphanol's
based)

for Pars

original

is

in the

instead

seeks

licensor;

to get its

midst of

money

bankruptcy

recovery from

and,

in this

Miles,

(diversity-

lawsuit against Miles, it pleads various theories of

state law.

The district court, after examining the evidence

proffered by
Miles.

the

Maruho

parties,
appeals.

granted
We

summary

affirm the

judgment

for

district court's

judgment.
I
Maruho's Procedural Argument
____________________________
At
It

says

the outset, Maruho

that

the district

raises a procedural point.

court

improperly

converted a

motion by Miles for judgment

on the pleadings, Fed. R. Civ.

P.

for summary judgment,

12(b)(6), into

a motion

Fed. R.

Civ. P. 56, without giving Maruho a "reasonable opportunity"

to present "pertinent
(court shall
motion

for

pleading" are

material." See Fed. R. Civ.

___

treat motion
summary

for judgment

judgment

presented to

where

on pleadings

"matters outside

and accepted

-33

P. 12(b)

by the

as a
the

court and

"reasonable opportunity" to

present "pertinent material" is

"given").
The
claim.
risk

record,

Miles' motion

however, does
gave Maruho

not

adequate notice

of summary judgment, for Miles

Dismiss

or,

support Maruho's
of the

entitled it "Motion to

in the Alternative, for Summary Judgment"

_____________________________________________

(emphasis added).

We concede that Maruho

immediately told

the

thought Miles' motion

requested summary

court that it

judgment on only one count.

___

But Maruho also told the court,

in writing at the same time, that it would assume "that

of Miles' contentions
P.

12

and

[summary

original).
of

judgment

rule]

56"

Fed. R. Civ.
(emphasis

in

Maruho then presented to the court three volumes

documents, which it

Record."

are asserted under both

all
___

In

argument,
that it had

titled "Plaintiff

Summary Judgment

response to questioning by this

Maruho could not

identify any piece

lacked the opportunity to submit.

circumstances, Maruho converted Miles'

______

court at oral
of evidence
Given these

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,

present all "pertinent"

"reasonable

material.

opportunity"

to

See In re G.& A. Books,

___ ____________________

Inc., 770 F.2d 288, 294-95 (2d Cir. 1985), cert. denied, 475
____
____________
-44

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
participant
Pars'

argues that Miles

is liable as

an actual

in Pars' fraud, either by "aiding and abetting"

fraud, by

engaging in an

acting

"in

concert"

with

"unfair or deceptive act or

Pars,

or

practice."

by
See
___

Mass. Gen. L. ch. 95,

N.E.2d

11; Kyte v. Philip Morris, Inc., 556

____
___________________

1025 (Mass. 1990);

876(a),

(b) (1979)

Restatement (Second) of Torts

______________________________

[hereinafter "Restatement (2d)"].

_________________

It

says that, in the circumstances, a showing that Miles either

1) actually knew about the
______________
about the fraud,

fraud, or 2) should have known

__________________

is sufficient to trigger

as an actual participant.

Miles' liability

We shall consider, in turn, each

of the two branches of Maruho's argument.

1.

Actual knowledge.
__________________

argument's sake,
about

Pars'

that a

fraud

We

finding that

would

trigger

shall

assume,

Miles actually
Miles'

finding.
-55

knew

liability.

Nonetheless, like the district court, we do not believe

record would permit a reasonable

for

the

juror to make that factual

Maruho says that a juror might find Miles' "actual

knowledge" by inferring, from Miles' conceded knowledge that
Maruho
that

was willing
Miles

Xorphanol

to pay $3

must have

known

that

studies from Maruho.

pay so much for so little?

requires

million for

some kind

of

Pars hid

the sublicense,
the

negative

Otherwise, why would Maruho

To make the inference, however,

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
-66

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.
-77

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
Maruho's

favor, shows

great deal of

a record that, even

(1) a

product

money; (2) Miles'

when viewed in

potentially worth

belief, after learning

a
of

the negative studies, that Xorphanol was still valuable; (3)

experts (at

Glaxo) who thought that Xorphanol was not worth

developing;

but (4)

Xorphanol

a respected

expert

was still worth developing.

who thought

that

Had Maruho presented

-88

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.
our

But Maruho presented

lay reading

of

the

no such expert testimony.

record,
to

including

the

the conclusion

And,

relevant

studies,

leads inexorably

differed

in their views about Xorphanol's value, with Miles

indisputedly arguing for further development.

that experts

That fact, in

turn, means that Miles need

not have concluded, from the $3

million payment,

must have

that Pars

hidden the

studies.

And, a reasonable jury could not conclude that Miles in fact

__ ____
knew about Pars' misconduct.
2.
is

liable as

fraud.

"Should have known."

_________________
long as

have known"

about Pars'

The record, however, even when interpreted favorably

to Maruho, supports
the point

where a

should have
factual

it "should

Maruho argues that Miles

the factual part of this

reasonable juror might

been suspicious --

finding does

find that

and no further.

not provide

legal finding that Miles is

claim only to

sufficient

Miles

And, that
basis for

liable as an actual participant

in the fraud.
-99

First,
theories

rest

insofar as
upon a

Maruho's "actual

tortfeasor's

participant"

intentional action,
___________

finding about what Miles "should have known" is insufficient

for

a finding

defines

of an

that "intent"

broadly,

as

substantially

certain

made clear that

to

8A (1965).

that

Massachusetts courts

one

"purpose" or,

more

the

result

consequences
from

[the

are

act]."

The Massachusetts courts have

supporting

Kyte, 556
____

intent, whether
a

and abets" a

least, the defendant

substantial,

enterprise."

terms of

a defendant "aids

if, at the

"its

in

"belie[f]

Restatement (2d)
________________

only

actual unlawful

N.E.2d

have held

tortfeasor

actually knows about

_____

role

in

at 1028.
that a

an

unlawful

Similarly,

the

defendant acts

"in

concert" with a tortfeasor only if the defendant "agrees" to

work toward the unlawful result.
Gurney v. Tenney, 84 N.E.
______
______
knowledge that
neither

have

Pars was
known

See, e.g., id. at 1027-28;

___ ____ __

428 (Mass. 1908).

hiding negative

of Pars

unlawful

Without actual

tests, Miles
(i.e.,

can

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

very worst,

nothing more

than a

upon a suspicion, that is,

negligent failure
_______

the

to act

an omission on Miles' part.

To

-1010

predicate tort liability upon a negligent omission, one must

find

special

relationship,

plaintiff, that imposes

positive
(2nd)
_____

a duty upon

steps to protect
291

aid

and

the defendant to

take

the plaintiff.

& comments a, c

the general rule that liability

the

defendant

See Restatement
___ ___________

comment f (negligent "nonfeasance"

special relationship), 314

for

between

or

situations in which

protection

requires a

(1965) (stating

for failure to take

of

another

there exists some

is

action

limited

to

special relationship

between the

parties).

suggesting

that

"licensor/sublicensee"
___
such a duty.

The

We are not
the

simple

automatically,

of

any authority
relationship

by

itself,

creates

exceptional situations in which authority

supports the existence of such

See id.
___ __

aware of

a duty are not present here.

314A-324A (listing exceptions to the general rule

non-liability, none

of which encompasses

sublicensee relationship).

Finally,

the licensor-

Maruho has not

any other ground

that might

necessary

We therefore agree with the district court

duty.

support the

argued

existence of

the

that no such duty existed.

3.
93A

of the

"unfair or

Maruho argues that Miles has violated chapter

Massachusetts General
deceptive act or

Laws by

practice."

engaging in

Mass. Gen.

an

L. ch.

-1111

95,

11.

But,

to prove

a violation,

Maruho must

show

conduct that involves

some kind of "rascality."

v. Himmer, 949 F.2d 1, 7 (1st

______
no

authority that

licensor

would

has only

justify such

suspicion, not

licensee's improper conduct,

duty

to

act

Cir. 1991).

to

protect

Tagliente
_________

Maruho has cited

finding where

actual

knowledge, of

and where the licensor

the

potential

victim.

circumstances simply do not indicate "rascal-like"

on

Miles'

part.

We

therefore

do

has no

not

The
behavior

believe

the

Massachusetts courts would find a violation of the chapter.

III
Vicarious Liability
___________________
Maruho
it is

says that, even if Miles is without fault,

nonetheless "vicariously"

caused, either

because Pars

Miles and Pars were engaged

enterprise").
Maruho
Miles

The

had

the

See, e.g.,
___ ____

27

Cir.

(1st

1988)

of the

agent, or

Pars

because

vicarious

to

liability that

Maruho

control

to show

(joint

enterprise

-1212

F.2d 22,

exists

equal right to direct

other[s] concerning

that

Pars' negotiating

Lyon v. The Ranger III, 858

____
______________

participants "'ha[ve] an
the conduct

the harm

in a "joint venture" (or "joint

all require

legal right

activity.

was Miles'

theories of

argues, however,

liable for

acts or

where

and control
omissions

which

cause, or contribute

(quoting Adams
_____
Payton v.
______

equal]
the

v. Dunton,
______

Abbott Labs,
___________

1981) (joint

to the causation
187 N.E.

512 F. Supp.

venture requires

means

of

achieving

(Second) of Agency
__________________

90, 92

those

(Mass. 1933));

1031, 1036

"joint [but

control of the objectives of

of, injury.'"

not necessarily

the undertaking and of

objectives");

Restatement
___________

1 comments a, b (1958); W.

Page Keeton

et al., Prosser and Keeton on the Law of Torts

______________________________________
20

(D. Mass.

72, at 519-

(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

negotiation and
provides

to participate in or

granting of

no evidence of any

sublicenses.

control the

And the

record

statement, or action, by Miles

that

suggests

activity.

any

We concede

evidence

of

was no actual
Maruho

to

control

Pars'

that, sometimes,

actual control

existence of a

and

right

as a

control.
were

Miles did

negotiating

negotiations were already

first learned the terms of

jury might

basis for

corresponding legal right.

negotiating

But

use

inferring the
here, there

not even know that

a

sublicense

Pars

until

roughly seven months old;

the

and it

the proposed contract -- such as

-1313

the fee

Maruho was to pay for the

sublicense -- only a few

weeks before the contract was scheduled to take effect.

Maruho
ability to

nevertheless

grant, or deny,

argues

that

Miles'

legal

Pars a needed extension

of the

basic license permitted Miles to influence the terms

of, or

to benefit from, the sublicense.

believe that
influence

the

But, we have no reason to

simple, unexercised,

practical power

to

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,

of the

any

negotiations.

many

persons

We are not

the simple

fact that Miles

sublicense

(through

Miles/Pars

license

vicariously

liable for Pars'

joint

proposition.

the royalty-sharing
agreement)

does

conduct.

central to

not

that profit sharing

joint venture);

joint control, a

common (pecuniary) interest is

-1414

Miles

e.g., Payton,
____ ______

845, 847-48 (Mass. App.

IV

in the

make

Fife, 430 N.E.2d

____

to establish a joint enterprise).

find no

from the

provision

See,
___

the

We add that

might have benefitted

at 1036 (recognizing

control are

influence

surprised that we could

legal authority supporting such a

512 F. Supp.

who might

and
___

Stock v.
_____

Ct. 1982) (absent

not enough

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"

See Restatement of Restitution

___ __________________________

the share

to Maruho.

1 (1937) ("A person who has

been unjustly enriched at the expense of another is required

to make restitution to the other.").
of this argument,

The controversial part

however, lies in its premise.

Did Miles

ever receive a portion of the $3 million?

The

relevant facts are not in dispute.

Pars disagreed about

Maruho's $3

half.

whether Miles was entitled

million sublicense fee.

fee was a "royalty,"

Miles

in which case it was

Pars argued that

to some of

argued that the

entitled to one-

the entire sum represented a return

of Xorphanol development
entitled to nothing.

Miles and

expenses, in which case

Miles and Pars then

Miles was

agreed that Pars

would deposit $1,350,000 of

the fee into an escrow

and retain

The

the remainder.

escrow agreement

that the money "shall remain in escrow" until

a. The Parties . . .
satisfactory agreement
distribution; or

either reach
as to . .

b. A final
decision
arbitration . . .; or,

is

-15-

reached

a
.
by

account
provided

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
must show,
some

at a minimum,

other

interest

Restitution
___________
possession
absence

Maruho to obtain "restitution" from Miles, it

in"

comment

of the money.

of an

that Miles had "possession

agreement

this

money.

Restatement of
_______________

b.

But

The

interest that it had (in the

from

consisted of little more than a

Pars

Miles

of or

as

never

to

did

have

distribution)

right to bring a lawsuit to

obtain money to which its legal right (the record indicates)

was highly uncertain.
escrow served

only to

And,

since Pars would not agree, the

isolate and protect

other potential Pars creditors while

the money

from

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.

read favorably to

Nor does the record,

Miles, show anything of value

that Miles

-1616

received for releasing

the escrow.

by

development work

Pars to

otherwise
Miles, for

engage in

have undertaken.)

a time, thought it had a

convinced Pars (in part through

to extend, the

no "promise"

that it

record

would not

shows only

that

right to the money and

its power to extend, or not

basic license) to place the

while Miles decided

some more

The

(It shows

whether or not

tangible interest here,

to sue.

money in escrow
(If

Maruho at least

there was
had the

burden of showing just what

not even try to do
find

so.)

it consisted of, but Maruho did

We are not surprised that we could

no authority supporting

"interest"

falls

description

of

within

the scope

"enrichment,"

authority directly on point.

F.2d 1310, 1314-15
(1989).

the proposition that

while

of

the
we

such an

Restatement's
found

contrary

Gilpin v. AFSCME, AFL-CIO, 875

______
_______________

(7th Cir.), cert. denied, 493 U.S.

_____________

917

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"
under

by money that he

does "possess"
____

a constructive trust created by his promise to assume

"personal responsibility," which trust he

________ ______________
giving the money to another.
For

these reasons

violates by later

That case is not on point.

the

court is
-1717

judgment of

the district

Affirmed.
________

-18-

18