Court Opinion

ID: 196481
Source: CourtListenerOpinion
Date Created: 2011-02-07 03:06:59+00
Date Added: 2024-06-11T13:14:30.539587
License: Public Domain

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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                                          6

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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                                          8

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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