Court Opinion

ID: 2963836
Source: CourtListenerOpinion
Date Created: 2015-09-21 21:15:54.929701+00
Date Added: 2024-06-11T11:42:43.386304
License: Public Domain

USCA1 Opinion

	

                            UNITED STATES COURT OF APPEALS
                            UNITED STATES COURT OF APPEALS
                                FOR THE FIRST CIRCUIT
                                FOR THE FIRST CIRCUIT
                                 ____________________

        No. 95-1356

                          ORKIN EXTERMINATING COMPANY, INC.
                                D/B/A ORKIN LAWN CARE,

                                Plaintiff, Appellant,

                                          v.

                              ARTHUR WALTER RATHJE, III,

                                 Defendant, Appellee.

                                 ____________________

                     APPEAL FROM THE UNITED STATES DISTRICT COURT

                          FOR THE DISTRICT OF MASSACHUSETTS

                     [Hon. Nancy J. Gertner, U.S. District Judge]
                                             ___________________

                                 ____________________

                                        Before

                                  Cyr, Circuit Judge,
                                       _____________
                            Bownes, Senior Circuit Judge,
                                    ____________________
                              and Boudin, Circuit Judge.
                                          _____________

                                 ____________________

            Richard P. Decker, with whom David  H. Woodham, Decker &  Hallman,
            _________________            _________________  _________________
        and  James  E.  Riley,  Jr.,  Of Counsel,  were  on  brief  for  Orkin
             ______________________
        Exterminating Company, Inc.
            Philip  A.  Tracy,  Jr.,  with whom  Paul  T. Prew  and  DiMento &
            _______________________              _____________       _________
        Sullivan,  were on brief for appellee.
        ________

                                 ____________________

                                  December 20, 1995
                                 ____________________

                      BOWNES, Senior Circuit Judge.  Plaintiff-appellant,
                      BOWNES, Senior Circuit Judge.
                              ____________________

            Orkin  Exterminating  Company,  Inc.  ("Orkin")   operates  a

            nationwide   chemical   application   lawn   care   business.

            Defendant-appellee,   Arthur  Walter  Rathje,  III,  was  the

            manager  of the  Hingham, Massachusetts,  branch  office from

            May, 1987, until  his resignation on April  9, 1993.  In  the

            winter of  1992, defendant's  wife created a  business entity

            called  "Nature's  Way,"  later  changed  to  "Global  Green"

            (collectively  -  Global).     Global  was  in  the  chemical

            application lawn care business and operated  in the same area

            as did Orkin's Hingham branch.

                      On  August 3,  1993, Orkin  sued  defendant, Arthur

            Rathje, and his wife,  Karen, on the following grounds:   (1)

            defendant, Arthur Rathje, while an employee of Orkin breached

            his  fiduciary duty  to  Orkin by  working  for Global  as  a

            management  employee; (2) defendant  Arthur Rathje engaged in

            unfair  trade  practices  while   an  employee  of  Orkin  in

            violation of Mass. Gen.  Laws Ann. ch.  93A   3 (West  1984);

            (3)  defendant, Arthur  Rathje, converted  property  owned by

            Orkin;  (4)  Karen  Rathje  tortiously  interfered  with  the

            business relationship  between defendant, Arthur  Rathje, and

            Orkin;  and  (5) Karen  Rathje  converted  property owned  by

            Orkin.

                      The  case was tried to  a jury and  all claims were

            submitted to the jury.  It found in favor of  Karen Rathje on

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            all claims against her.  No appeal has been  taken from these

            verdicts.   The jury  found for defendant,  Arthur Rathje, on

            the conversion claim.   No  appeal has been  taken from  this

            verdict.

                      The jury could not agree on the breach of fiduciary

            duty  claim, nor on the  claim brought under  Mass. Gen. Laws

            Ann. ch. 93A.  Both claims had been submitted to  the jury on

            an  advisory basis.   With the  acquiescence of  counsel, the

            district  court decided  these two  claims.   It is  from the

            findings and rulings  of the district  court on these  claims

            that Orkin appeals.

                               Breach of Fiduciary Duty
                               Breach of Fiduciary Duty
                               ________________________

                      Under  Massachusetts  law,  "[e]mployees  occupying

            positions  of trust and confidence  owe a duty  of loyalty to

            their  employer  and  must   protect  the  interests  of  the

            employer."   Chelsea Indus., Inc. v. Gaffney, 389 Mass. 1, 11
                         _______________________________

            (1983).   It follows  that "an executive  employee is 'barred

            from actively  competing with his employer  during the tenure

            of his employment, even in the absence of an express covenant

            so providing.'"  Id. at 11-12 (citations omitted).
                             ___

                      Under  Massachusetts  law  there are  two  remedies

            available to an employer  for breach of fiduciary duty  by an

            employee.   If the conduct caused  a loss to the employer, it

            can recover  as damages the amount of such loss.  Augat, Inc.
                                                              ___________

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            v.  Aegis,  Inc.,  409 Mass.  165,  175    (1991); Meehan  v.
            ________________                                   __________

            Shaughnessy; Cohen, 404 Mass. 419, 436 n.14 (1989).
            __________________

                      The second remedy is forfeiture of compensation  by

            the employee  during the period of breach  of fiduciary duty.

            An  employee  "can  be  required  to  forfeit  the  right  of

            compensation even  absent a showing  of actual injury  to the

            employer."  Chelsea Indus., Inc. v. Gaffney, 389 Mass. at 12-
                        _______________________________

            13.

                      We  discuss  the   district  court's  findings  and

            rulings seriatim.
                    ________

                      We  agree with the district court's conclusion that

            defendant breached his fiduciary duty  of loyalty to Orkin by

            helping his wife operate a lawn care business in  competition

            with the Orkin  branch office which he managed.   There is no

            need  to  restate  the   factual  findings  leading  to  this

            conclusion.  They are set forth clearly and explicitly in the

            district court opinion and we adopt them.

                      The district court further found that Orkin had not

            proven that defendant's conduct, reprehensible as it may have

            been, caused any damage to Orkin.  It held that Orkin did not

            prove a causal connection between defendant's conduct and its

            claim  that  the  branch  office   defendant  managed  became

            worthless.  We  have reviewed the trial  record carefully and

            can find no basis for setting the conclusion aside as clearly

            erroneous.

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                      Plaintiff's expert testified that the branch office

            was worth  a minimum of $106,000  in 1990 and in  1993 had no

            value at all.  Two of the factors he considered were material

            and equipment that disappeared  from the branch office during

            defendant's  tenure  as  manager.   This  was  the  basis  of

            plaintiff's  conversion  count.    But  the  jury  found  for

            defendant on the  conversion claim and  that verdict has  not

            been  appealed.    The  missing   equipment,  materials,  and

            supplies,  if  such  there   was,  cannot  be  attributed  to

            defendant.   And as the district court pointed out, there was

            persuasive  evidence  that during  the  period defendant  was

            wearing two hats,  the branch office prospered.   During this

            time,  business expanded  and profits  increased.   Defendant

            received  two bonuses  during the  implicated period  - April

            1992 - April 1993.  None of defendant's  superiors complained

            about his work;  in fact, his managerial talents were lauded.

            And  it must  be noted  that defendant  resigned voluntarily;

            there is no  evidence that  he was pressured  into doing  so.

            Defendant may have breached his fiduciary  duty to Orkin, but

            there  is evidence in plentitude from which it could be found

            that such breach caused no harm to Orkin.

                      We next address  the district court's finding  that

            Orkin  could  not  recover  the  compensation paid  defendant

            during the period he  breached his fiduciary duty -  April 1,

            1992 to April 9, 1993.  There is no dispute  about the period

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            of time during which the breach of fiduciary duty took place.

            The  court found:  "[T]he value of his [defendant's] work was

            equivalent to  his salary  notwithstanding what he  was doing

            for  his  wife's  small  business.    Therefore,  Mr.  Rathje

            satisfied his burden of showing that the value of the work he

            performed  for Orkin  equalled the  compensation he  received

            during the period he breached his duty of loyalty."

                      We turn  to the  applicable Massachusetts law.   In

            Chelsea Indus.,  Inc. v. Gaffney, the court held that "unless
            ________________________________

            defendants proved the value  of their services, the plaintiff

            was  entitled to  recover  their entire  compensation."   289

            Mass. at 14.   The court then went on  to note that, although

            given the  opportunity to  do  so, defendants  had failed  to

            present evidence as to the fair value of their services.  Id.
                                                                      ___

            at 15.   In  Meehan  v. Shaughnessy,  the court  held that  a
                         ______________________

            fiduciary may be required  to repay only that portion  of his

            compensation that exceeded the worth  of his services to  his

            employer.   404 Mass. at  441.  Clearly,  under Massachusetts

            law the employee  must prove  the value  of his/her  services

            during the breach period.

                      We hesitate to set aside the factual finding of the

            district  court  that  defendant  "satisfied  his  burden  of

            showing that the  value of  the work he  performed for  Orkin

            equalled the  compensation he  received during the  period he

            breached his duty of loyalty."  But we are persuaded that the

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            finding is clearly erroneous for two related reasons.  First,

            there  was no  explicit  evidence as  to  the fair  value  of

            defendant's services during the period of breached loyalty as

            would seem  to be  required  under Massachusetts  law.   This

            standing alone, however, would not render the finding clearly

            erroneous.   There was evidence which,  in the ordinary case,

            would suffice to sustain the district court's finding despite

            the  lack of explicit  evidence by defendant  that the salary

            paid to him during the period equalled the  fair value of the

            services performed.

                      This, however,  is not the ordinary  case.  Because

            of  the   court's  finding  that  defendant's  energies  were

            diverted away  from his responsibilities to  Orkin, and given

            the burden  on him to  prove the  value of his  services, the

            court's  finding that he was worth  everything Orkin paid him

            is very hard to credit.  It could be argued that Orkin set up

            fairly precise standards for measuring the job performance of

            an  employee  in  defendant's  position  and  that  defendant

            satisfied  them.   There  may be  certain  jobs where  it  is

            possible to  measure an employee's performance  so accurately

            that  evidence of  the employer's  positive evaluation  would

            sustain  a finding  that the amount  paid the  employee would

            equal the fair value of his services.  But this is not such a

            case.

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                                          7

                      In this case, such  a measurement was not possible.

            As  a branch office manager, defendant not only operated with

            relatively little direct monitoring, but also contributed  to

            the  criteria used  to  judge his  performance.   In  a  "1st

            quarter review letter" authored by defendant, dated March 27,

            1993,  which  was  within  the  breached-loyalty  period,  he

            stated,  in effect,  that he  was ahead  of Orkin's  goal for

            customer  confirmations  and  its  profit/loss target.    The

            evidence establishes that defendant helped formulate  his own

            branch office goals.  

                      We think  it was  error for the  district court  to

            place  the emphasis it did  on the bonuses  paid defendant by

            Orkin and  the positive  evaluation he received  because they

            were  based on  Orkin's  mistaken belief  that defendant  was

            putting  his  undiluted  efforts  into  its  business.    Had

            defendant not  deceived his  employer, it  is clear that  its

            perception  of  his  value  to the  company  would  have been

            altered.  We therefore hold that it was clearly erroneous for

            the district court to find that the fair value of defendant's

            services to Orkin was  unimpaired.  The court failed  to give

            proper weight  to its own  finding, solidly supported  in the

            record, that defendant diverted  an appreciable amount of his

            time and energy from Orkin's business to a competing business

            owned and  operated by  him  and his  wife.   And  the  court

            apparently failed to factor into its finding the heavy burden

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            on defendant to prove that his work was worth the full amount

            paid him by Orkin.

                      We  recognize that  the  evidence credited  by  the

            district court indicates that defendant's services were worth

            something to Orkin.   But under our reading of the record and

            our  understanding of  Massachusetts law,  this must  be less

            than  the  full   amount  paid.    A  remand  is,  therefore,

            necessary.  Although the court's calculation will necessarily

            be imprecise, it is  well within the capability of  the trial

            judge  to  make.    We  will,  of  course,  give  substantial

            deference to a reasonable finding by the court.

                      The district  court also  committed clear error  in

            another respect.   It found  in footnote six  of its  opinion

            that "Orkin submitted no evidence reflecting the compensation

            paid Mr.  Rathje during the  relevant period."   The relevant

            period was from  April 1, 1992  to April 9,  1993.  In  fact,

            Exhibit T  shows that  defendant was paid  $45,000, including

            bonuses,  from January  1,  1992 to  December  31, 1992,  and

            $13,905.29 for the period  January 1, 1993 to April  9, 1993.

            Although this  does not cover the  relevant period precisely,

            it   is  sufficiently   complete  so   that  the   amount  of

            compensation paid during the  relevant period can be prorated

            and accurately determined.  

                                    The 93A Claim
                                    The 93A Claim
                                    _____________

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                      Chapter  93A    11  of Mass.  Gen. Laws  Ann. (West

            1984) provides:

                      Any person who engages in the conduct  of
                      any trade or commerce and who suffers any
                      loss   of  money  or  property,  real  or
                      personal,  as  a  result  of the  use  or
                      employment  or  by  another   person  who
                      engages  in any trade  or commerce  of an
                      unfair method of competition or an unfair
                      or  deceptive  act  or practice  declared
                      unlawful by section two ... may ... bring
                      an action in  the superior court  ... for
                      damages and equitable relief...

                      The  district court held  that because Orkin failed

            to prove a causal  connection between defendant's conduct and

            harm,  if any,  to Orkin,  there was  no 93A  violation.   We

            agree.  As already pointed out, there was evidence from which

            it could reasonably be found that the Orkin branch,  operated

            by defendant during the time he aided and abetted his wife in

            competition  with Orkin, prospered.  See supra.  It is beyond
                                                 ___ _____

            peradventure that "there must  be a causal connection between

            seller's  deception and the  buyer's loss."   Kohl  v. Silver
                                                          _______________

            Lake Motors,  Inc., 369  Mass. 795, 800-01  (1976); Shepard's
            __________________                                  _________

            Pharmacy  v. Stop & Shop  Companies, Inc., 37  Mass. App. Ct.
            _________________________________________

            516, 522 (1994); PDM  Mechanical Contractors, Inc. v. Suffolk
                             ____________________________________________

            Constr. Co., Inc., 35 Mass. App. Ct. 228, 237 (1993). 
            _________________

                      Affirmed in part.   Remanded for the district court
                      Affirmed in part.   Remanded for the district court
                      ___________________________________________________

            to determine an appropriate  amount of defendant's salary for
            to determine an appropriate  amount of defendant's salary for
            _____________________________________________________________

            reimbursement to Orkin.
            reimbursement to Orkin.
            _______________________

                      No costs to either party.
                      No costs to either party.
                      _________________________

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