Court Opinion

ID: 2964530
Source: CourtListenerOpinion
Date Created: 2015-09-21 21:27:04.758866+00
Date Added: 2024-06-11T11:42:57.436709
License: Public Domain

USCA1 Opinion

	

                            UNITED STATES COURT OF APPEALS
                                FOR THE FIRST CIRCUIT
                                 ____________________

        No. 96-1804

                                  WAYNE H. SARGENT,

                                Plaintiff, Appellant,

                                          v.

                                    TENASKA, INC.,

                                 Defendant, Appellee.

                                 ____________________

                     APPEAL FROM THE UNITED STATES DISTRICT COURT

                          FOR THE DISTRICT OF MASSACHUSETTS

                    [Hon. Michael A. Ponsor, U.S. District Judge]
                                             ___________________

                                 ____________________

                                        Before

                                 Selya, Circuit Judge,
                                        _____________

                            Aldrich, Senior Circuit Judge,
                                     ____________________

                              and Boudin, Circuit Judge.
                                          _____________

                                 ____________________

            Thomas P.  Billings with  whom Karen S.  White and  Sally &  Fitch
            ___________________            _______________      ______________
        were on brief for appellant.
            Stephen B. Deutsch with whom Foley, Hoag &  Eliot was on brief for
            __________________           ____________________
        appellee.

                                 ____________________

                                    March 5, 1997
                                 ____________________

                 BOUDIN,  Circuit  Judge.    Wayne Sargent  brought  this
                          ______________

            action  in the  district court  against his  former employer,

            Tenaska, Inc.   On appeal,  the case has  been narrowed:  the

            issue  is whether  Sargent has a  claim to  certain ownership

            interests  because  of  an  alleged  breach  of  the  implied

            covenant of  good faith and fair  dealing under Massachusetts

            law.   Because  the district  court granted  summary judgment

            against Sargent  on  this issue,  we review  its decision  de
                                                                       __

            novo,  drawing  reasonable  factual inferences  in  Sargent's
            ____

            favor.  Grenier v. Vermont Log Bldgs., Inc., 96 F.3d 559, 562
                    _______    ________________________

            (1st Cir. 1996).

                 Tenaska,   Inc.,   develops    power   generation    and

            cogeneration  projects  in  different  areas  of  the  United

            States.  Sargent, a Massachusetts resident with many years of

            pertinent engineering and management experience, was hired by

            Tenaska, Inc., in May 1990.  His title was General Manager of

            the  Eastern  Region.    Tenaska, Inc.,  had  a  cogeneration

            project  under way  in Lee,  Massachusetts, and it  was hoped

            that  Sargent would  organize other  projects in  the Eastern

            Region for the company.

                 Sargent's compensation  included not only  a management-

            level  salary but also a promise of an "ownership interest of

            1.50%  in  Tenaska,  Inc.,  Lee  Mass  Cogeneration  Company,

            Tenaska  Gas Company  and  in any  entities  created for  new

            projects and formed by Tenaska subsequent to [his] employment

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            start  date."    This  language  appeared in  a  letter  from

            Tenaska, Inc., to Sargent  offering employment.  The district

            court treated the  letter as setting forth  the initial terms

            of an  at-will employment  relationship and neither  side now

            disputes this treatment.

                 Tenaska's  letter  provided  that   Sargent's  ownership

            rights would be made  available beginning twelve months after

            the  start of his employment.  The  letter also said that the

            ownership  plan,  which had  not  yet  been developed,  would

            ultimately  include a right of  the company "to  buy back the

            ownership  interests of terminated  employees under specified

            terms and conditions that will penalize short-term employment

            and reward performance and long-term accomplishments."  

                 Tenaska, Inc.,  never developed a single  ownership plan

            but instead set up a separate plan for each entity, including

            almost a half-dozen new ones created after Sargent joined the

            company  and  during  his  tenure.    In general,  the  plans

            provided  a vesting schedule for ownership interests acquired

            by  an employee; the company was allowed on termination of an

            employee  to repurchase  the  unvested portion  at a  nominal
                                          ________

            price.  The  vesting schedule, in the  typical plan, provided

            as follows:1   First 6 months:0% is vested

                                
            ____________________

                 1In the case  of one company, the  entire interest could
            be  repurchased  even  after  the full  vesting  period,  but
            Tenaska had to  pay book value  for the vested portion.   For
            another  company, half  the vested  interest could  always be
            repurchased for nominal value.  These variations do not alter

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                                         -3-

                 Months 7-18:        15% is vested

                 Months 19-30:       35% is vested

                 Months 31-42:       65% is vested

                 After 42d month:    100% is vested 

                 Not  long after  Sargent joined  Tenaska, Inc.,  the Lee

            project  was cancelled.  The  project was not  revived and no

            other projects  were secured  in Sargent's region  during his

            period  of  employment.   In  December  1993, Tenaska,  Inc.,

            decided to  close its  Massachusetts office and  to eliminate

            Sargent's position.   Sargent was offered  a new position  at

            the company's Omaha headquarters;  the new position carried a

            lower  salary and  less favorable  benefits in  the ownership

            plans, including a reduction in various interests Sargent had

            or hoped to secure in existing projects.

                 Sargent  declined  the proposal  and  was  terminated by

            Tenaska, Inc., in January 1994, having served about three and

            one-half  years  with the  company.    Prior to  termination,

            Sargent had been granted certain ownership interests in a few

            of the Tenaska projects  but less than all to which he deemed

            himself entitled  under the  terms of the  employment letter.

            Sargent immediately brought the  present suit in the district

            court against Tenaska, Inc.,  seeking all that his employment

            letter explicitly provided, and more.  

                                
            ____________________

            the issue on  appeal, and we disregard them  for simplicity's
            sake.

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                                         -4-

                 The  explicit  contract claim  need not  detain us.   On

            cross motions for summary  judgment, the district court ruled

            the employment letter was a contract, suggesting that Sargent

            might be  entitled  to  ownership  interests,  or  comparable

            damages, to the extent that the promised interests had become

            vested  under their  plans  at the  time of  his termination.

            Sargent  v. Tenaska,  Inc., 914  F. Supp.  722, 729,  730 (D.
            _______     ______________

            Mass. 1996).  Thereafter,  Sargent and Tenaska, Inc., reached

            a settlement that disposed entirely of these express contract

            claims.

                 What remains  open is  Sargent's claim for  "more."   In

            substance, Sargent  has argued in  the district court  and on

            appeal  that he is also  entitled to the  unvested portion of

            the ownership  interests in  question that would  have become

            vested  in due  course if he  had not  been discharged.   The

            basis  for this claim is  the implied covenant  of good faith

            and fair dealing that Massachusetts law reads into employment

            contracts.

                 This implied  covenant has  been taken by  Massachusetts

            courts  to  permit  discharged employees  to  recover  unpaid

            commissions or  other expectancies in  certain circumstances.

            Fortune v. National Cash Register Co., 364 N.E.2d 1251, 1257-
            _______    __________________________

            58  (Mass. 1977).  One  condition is that  the discharge have

            been done in bad  faith; another, put generally, is  that the

            interest  or  claim pertains  to  "past"  services, i.e.,  to
                                                                ____

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            services  already performed  at  the time  of the  discharge.

            McCone v. New England Tel.  & Tel. Co., 471 N.E.2d  47, 49-50
            ______    ____________________________

            (Mass. 1984).

                 In  the  district court  Tenaska,  Inc., sought  summary

            judgment against  this Fortune claim.   It conceded  that its
                                   _______

            good  or  bad  faith  in  discharging  Sargent  could not  be

            determined  on  summary  judgment,   but  asserted  that  the

            unvested interests claimed  by Sargent were compensation  for

            future rather than past services.  The district court agreed,

            stressing  the language  in  the employment  letter that  the

            vesting provision  was designed  to  "reward performance  and

            long-term accomplishments."  This appeal followed.

                  The  Fortune doctrine  is easy to  grasp in  the simple
                       _______

            case that spawned  it:   an at-will salesman,  entitled to  a

            commission  payable at a later date, is fired, after the sale

            but before the date of payment; and the reason for the firing

            is  to cut off the  commission.  In  that case, Massachusetts

            courts imply a covenant of good faith and fair dealing, treat

            the discharge as a breach, and fix the remedy as  an award to

            the salesman  of future compensation for  the completed sale.

            Fortune, 364 N.E.2d at 1257-58.
            _______

                 Since  Fortune  so held  in 1977,  Massachusetts appeals
                        _______

            courts have both extended and limited the doctrine in several

            important decisions.   For example,  Fortune-based recoveries
                                                 _______

            have  been  allowed in  Gram v.  Liberty  Mut. Ins.  Co., 429
                                    ____     _______________________

                                         -6-
                                         -6-

            N.E.2d 21, 29 (Mass.  1981) ("Gram I"), Maddaloni  v. Western
                                          ______    _________     _______

            Mass. Bus  Lines, 438  N.E.2d 351, 355-56  (Mass. 1982),  and
            ________________

            Cataldo v. Zuckerman, 482 N.E.2d  849, 855-56 (Mass. App. Ct.
            _______    _________

            1985).  These cases make clear that Fortune is not limited to
                                                _______

            simple cases of commission sales with deferred payments.  Id.
                                                                      ___

            at 851-52.

                 On  the  other  hand,  the Supreme  Judicial  Court  has

            confined recovery  to "identifiable, future benefit[s]  . . .

            reflective of past services,"  Gram I, 429  N.E.2d at 29, and
                                           ______

            firmly excluded  prospective benefits  not thus tied  to past

            services,  McCone,  471 N.E.2d  at 50; Gram  v. Liberty  Mut.
                       ______                      ____     _____________

            Ins. Co., 461 N.E.2d 796, 798 (Mass. 1984) ("Gram  II").  The
            ________                                     ________

            recurring difficulty, presented in the case before us, is how

            to decide whether the unvested  interests relate to "past" or

            "future" services.

                 We treat this characterization issue as one of law.  The

            contract terms agreed to  by the parties are not  in dispute;

            the  debate  is  whether  the law  should  extend  protection

            (assuming bad  faith discharge)  beyond the express  terms of

            the contract  to certain  expectancies.  The  extent of  such

            protection is primarily a matter for judges, not juries.  See
                                                                      ___

            Gram II, 461 N.E.2d at 798; cf. Green v. Richmond, 337 N.E.2d
            _______                     ___ _____    ________

            691, 695  (Mass. 1975) (judge  decides the legal  question of

            whether undisputed contract terms violate public policy).

                                         -7-
                                         -7-

                 It is easy to  find a protectable interest where,  as in

            Fortune,  the promised future  payment is directly  tied to a
            _______

            particular  past service, such as a discrete sale.  This kind

            of  correlation  is  harder   where  the  future  payment  is

            connected not  with a  specific past  act but  with continued

            service at the  company over a period  of time.  The  company

            could be interested  simply in the  employee's service as  it

            occurs or,  at  the other  extreme, in  keeping the  employee

            until the last  day no matter what.  In  the former case, one

            could treat all of the time worked prior to discharge as past
                                               _____                 ____

            services  and require pro rata payment; the latter case might

            suggest otherwise.

                 In  reality, motives  are often  mixed: the  company may

            want  both to provide an ongoing incentive to work harder and

            to retain an ever more valuable employee as long as possible.

            A  periodic  vesting schedule  achieves  both  aims; and  the

            latter is  reenforced where, as here,  the incremental amount
                                                       ___________

            vested  in each period increases in later periods.  And, with

            periodic   vesting,  the   employee  gets   some  contractual

            protection (i.e.,  of vested  interests) against the  loss of
                        ____

            the job in midstream.

                 A good argument  could be made  that, where a  colorable

            periodic vesting  period is  provided, the parties  should be

            taken  to have settled between themselves  the issue that the

            Fortune doctrine  itself seeks  to mediate:  how much of  the
            _______

                                         -8-
                                         -8-

            promised  future  compensation should  be treated  as already

            earned  prior to the  discharge.  But  Massachusetts case law

            sends  mixed signals  on this  issue.   Compare Cataldo,  482
                                                    _______ _______

            N.E.2d at  851-52 with Cort v. Bristol-Myers  Co., 431 N.E.2d
                              ____ ____    __________________

            908, 910-11 (Mass. 1982).

                 Certainly,  terms like  "vested" and  "unvested" do  not

            automatically control.   An  agreement might provide  that an

            employee  who worked for  five years to  complete a five-year

            project would get a one-third interest at the end but nothing

            if he left prior to that date.  If  the employee was fired in

            bad  faith a  month before  completion,  it is  doubtful that

            Fortune could be shrugged off by saying that the interest had
            _______

            not yet vested.2

                 Still, ordinarily, a colorable periodic vesting schedule
                                                ________

            crudely delineates the line between past and future services.

            While  Sargent remained  at  the company,  his past  services

            grew; but so  did his  vested interests.   Most  of his  past

            services   were   therefore   already  compensated   by   his

            contractual   claims  to   vested  interests;   and  unvested

                                
            ____________________

                 2We  decline  Sargent's  invitation  to  rely  upon  the
            unpublished  slip opinion in Ground  Round, Inc. v. King, 671
                                         ___________________    ____
            N.E.2d 224  (1996) (Table), a summarily  affirmed decision of
            the Massachusetts  Appeals Court  that has some  bearing upon
            such a hypothetical.  Massachusetts forbids citations to such
            opinions in most circumstances,  see Lyons v. Labor Relations
                                             ___ _____    _______________
            Comm'n,  476 N.E.2d 243, 246  n.7 (Mass. App.  Ct. 1985), for
            ______
            reasons  explained  by the  Lyons court,  id., that  make the
                                        _____         ___
            seldom employed alternative practice exemplified by Aviles v.
                                                                ______
            Burgos, 783  F.2d 270,  283 n.4 (1st  Cir. 1986),  inapposite
            ______
            here.

                                         -9-
                                         -9-

            interests were largely  associated with  future services  not

            protected under Fortune.  We say "largely" because within the
                            _______                            ______

            single vesting  period embracing  the date of  discharge, one

            could  make an  effort  to distinguish  and protect  services

            already performed  between the start  of that period  and the

            date of discharge.

                 Sargent  has made no effort to argue for or support such

            a drastic narrowing of his claim; he has chosen to argue that

            yet unvested  interests  from all  then-occurring and  future
                                          ___

            vesting periods are related to past compensation.  Taking the

            case as he  has framed it, we agree with  the district court:

            taken as a  whole, the unvested interests  claimed by Sargent

            did not specifically and identifiably correspond to Sargent's

            past  services.     Predominantly,  they  were   oriented  to

            compensating services not yet provided.

                 Sargent himself  is unable  to explain how  the unvested

            interests he claims can plausibly  be treated as payment  for

            past services.  His main argument is that it would be "an odd

            sort of 'future compensation'  indeed, when the employee pays

            for  it, receives it,  earns income on it,  and pays taxes on

            it-- all in the present."  But there is nothing odd about it;

            certainly future services can be conditionally purchased by a

            nominal transfer of ownership  subject to a vesting provision

            and enforced by a buy-back option.

                                         -10-
                                         -10-

                 Sargent's best argument hangs on a single precedent, the

            Massachusetts  Appeals  Court  decision  Cataldo.   There,  a
                                                     _______

            developer hired Cataldo to supervise its projects,  promising

            him,  in  addition  to  a  base  salary,  a  portion  of  the

            developer's  equity  in  two  named projects  and  in  future

            projects handled by the firm.  If Cataldo's  employment ended

            during a project, the firm could buy back his interest at the

            lesser of appraised value or a sliding  scale payment, giving
            ______

            Cataldo  $1,000 per  month  times the  number  of months  the

            project had consumed.  Cataldo, 482 N.E.2d at 851-52.
                                   _______

                 The  latter provision was effectively a periodic vesting

            provision.  When  Cataldo was  later fired, he  sued for  his

            share  of  the  developer's  equity  in  several  uncompleted

            projects.   Although the  trial judge apparently  thought the

            express contract claim more  suitable, he also instructed the

            jury under  Fortune doctrine.   Cataldo,  482 N.E.2d at  854.
                        _______             _______

            The jury awarded Cataldo substantial sums.  The Appeals Court

            affirmed, saying:

                           We conclude that,  when Cataldo  was
                      discharged, the  possibility that Cataldo
                      would gain  later a  vested share  of the
                      developer's equity in each [firm] project
                      then    viable   was    sufficiently   an
                      `identifiable,  future  benefit  .   .  .
                      reflective   of  past  services'  .  .  .
                      performed by Cataldo,  to come within the
                      principle  of  the  Fortune  case.     We
                                          _______
                      recognize,  of  course, that  the precise
                      limits of  the doctrine of  that case are
                      not free from doubt.

            Cataldo, 482 N.E.2d at 855-56 (citations omitted).
            _______

                                         -11-
                                         -11-

                 Yet  the  Appeals  Court  never decided  the  question--

            critical  to us--whether the  buy-back provision  limited the

            firm's  liability  to  Cataldo  with  respect  to uncompleted

            projects.   Instead, the court upheld a jury finding that the

            buy-back option  had been waived  because the firm  failed to

            exercise  that option promptly.  Cataldo,  482 N.E.2d at 857.
                                             _______

            Indeed, the court's language  implies that it might otherwise

            have limited liability to the  vested interests.  Hammond  v.
                                                              _______

            T.J.  Litle  & Co.,  82 F.3d  1166,  1168-69, 1172  (1st Cir.
            __________________

            1996), perhaps closer to  our own facts, turned on  the plain

            error rule.

                 Absent controlling  precedent, we  have sought to  apply

            the principle of  Fortune--protection of compensation  earned
                              _______

            for  past  services--and  conclude   that  it  does  not  fit
                 ____

            Sargent's unvested interests.  To repeat, this is not because

            of  any magic in the  terms vested and  unvested, but because

            the  unvested  interests  here  predominantly  concern future
                                                                   ______

            services  expected from Sargent.  Gram II, 461 N.E.2d at 798.
                                              _______

            If  Fortune  is to  be extended,  this  is a  matter  for the
                _______

            Massachusetts courts and not for us.

                 Affirmed.
                 ________

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