Court Opinion

ID: 2961863
Source: CourtListenerOpinion
Date Created: 2015-09-21 20:48:58.561827+00
Date Added: 2024-06-11T11:42:22.509912
License: Public Domain

USCA1 Opinion

	

          March 31, 1993    UNITED STATES COURT OF APPEALS                            UNITED STATES COURT OF APPEALS                                FOR THE FIRST CIRCUIT                                FOR THE FIRST CIRCUIT                                      __________                                      __________          No. 92-1690                             NORTHEAST DATA SYSTEMS, INC.                                Plaintiff, Appellant,                                          v.                     McDONNELL DOUGLAS COMPUTER SYSTEMS COMPANY,                                 Defendant, Appellee.                                      __________                                     ERRATA SHEET               Please make the following  correction in the opinion in  the          above case released on March 2, 1993:          Page 5,  line 10:   After the  word "claims"  at the  end of  the          sentence, add the following language:                See Caton v. Leach  Corp., 896 F.2d 939, 943  (5th Cir.               ___ _____    ____________               1990) (breach of implied  covenant claims are breach of               contract  claims);  Restatement  (Second) of  Contracts                                   ___________________________________                 176 comment e (1981).             March 2, 1993                            UNITED STATES COURT OF APPEALS                                FOR THE FIRST CIRCUIT                                 ____________________        No. 92-1690                            NORTHEAST DATA SYSTEMS, INC.,                                Plaintiff, Appellant,                                          v.                     McDONNELL DOUGLAS COMPUTER SYSTEMS COMPANY,                                 Defendant, Appellee.                                 ____________________                     APPEAL FROM THE UNITED STATES DISTRICT COURT                          FOR THE DISTRICT OF MASSACHUSETTS                   [Hon. Robert B. Collings, U.S. Magistrate Judge]                                             _____________________                                 ____________________                                        Before                                 Breyer, Chief Judge,                                         ___________                           Cyr and Boudin, Circuit Judges.                                           ______________                                 ____________________            Roger S. Davis with whom Nancy  Pitnof-Mahoney and Davis, Rubin  &            ______________           _____________________     _______________        Parker, P.A., were on brief for appellant.        ____________            Frederick W. Rose with whom  Gianfranco A. Pietrafesa,  and Young,            _________________            ________________________       ______        Rose, Imbriaco & Burke, P.C. were on brief for appellee.        ____________________________                                 ____________________                                    March 2, 1993                                 ____________________                                         -2-                                          2                       BREYER,  Chief Judge.  In February 1976, Northeast                                ___________             Data,  a Massachusetts  firm, entered  into a  contract with             Microdata, a California company.  In the contract, Microdata             promised Northeast, among other things, that:                       1)   Northeast would become the "sole distributor"                            for  Microdata's  "Reality" line  of computer                            parts   and   related   software   in   seven                            Massachusetts counties;                       2)   Microdata  would  properly service  "Reality"                            products  after Northeast  Data sold  them to                            end users;                       3)   Microdata  would  supply proper  spare parts;                            and                       4)   Microdata   would   pay   Northeast   a   10%                            commission  on  any  "Reality" products  that                            Microdata  sold  directly  to  end  users  in                            Northeast's territory.             The parties'  relationship subsequently deteriorated.   And,             in  January 1983,  Microdata,  claiming  that Northeast  had             failed to meet its contractual  purchasing quota, terminated             the distributorship.                       Northeast  then  brought  this   diversity  action             (filed in state court then removed to federal court) against             Microdata.   In its original complaint Northeast essentially             said that Microdata  had broken its agreement (1) by failing             to  supply   enough,   or  adequately   trained,   servicing             personnel;  (2) by  failing to  supply enough,  or adequate,             supply parts; (3)  by failing  to pay  many 10%  commissions             when due;  (4) by marketing what  were essentially "Reality"             products under different names,  through other dealers;  and             (5)  by charging  Northeast  higher prices  than it  charged             other dealers.  Northeast later amended its complaint to add             a  "deceit"  claim that  Microdata  had  failed to  disclose             material  information  during contract  negotiations, namely             that  Microdata  was  selling  Reality  products,  and would             continue  to  sell  them,  to a  company  called  ADP, which             (according to Northeast) was both a "Reality" end user and a             competing  dealer.   In Northeast's  view these  actions and             omissions  broke both  explicit  and implicit  terms of  the             contract,   amounted  to   "fraud,"  and   violated  various             statutes,   which,  with  the  exception  of  Massachusetts'             "unfair  trade practices"  statute,  are not  relevant here.             See Mass. Gen. L. ch. 93A.              ___                       The parties tried the contract and fraud issues to             a jury, with the magistrate reserving the claim of violation             of  Chapter   93A.    The  jury  found  that  Microdata  had             wrongfully  terminated  the  distributorship;  that  it  had             broken  explicit terms  in the  contract  by failing  to pay             commissions  on "end  user" sales  to ADP;  and that  it had             broken an implicit covenant of "good faith and fair dealing"             (either by  failing to  pay commissions  on other  sales, by                                         -4-                                          4             failing to supply  proper parts  or service, or  both).   It             awarded Northeast approximately $1.7  million damages.   The             jury  also found  that  Microdata  had fraudulently  induced             Northeast to enter the contract by failing to tell Northeast             about  its  ADP sales;  but the  jury  refused to  award any             damages on that claim.                         The magistrate then turned to the reserved Chapter             93A  claim.    He  noted that  Northeast  and  Microdata had             agreed,  while the case was pending, to try the contract and             "fraud" claims under California  law.  He reasoned  that the             93A  claims  so closely  resembled  the  contract and  fraud             claims that the parties must have agreed "implicitly" to try             those  claims under  California law as  well.   He concluded             that,  since California  has  no 93A-type  of  law, he  must             dismiss Northeast's 93A claims.   Northeast now appeals that             dismissal.  See  28 U.S.C.     1291, 636(c)(3) (appeal  from                         ___             order of a magistrate judge).                       For  purposes  of  this appeal,  we  have  assumed             (without deciding)  that Northeast  is correct when  it says             that it neither explicitly nor implicitly agreed, during the             course of this litigation,  that California law would govern             its 93A claims.   Nonetheless, Northeast  did agree, in  the             contract itself, that                                         -5-                                          5                       This  Agreement  and   the  rights   and                       obligations of the parties  hereto shall                       be   governed   by   and  construed   in                       accordance with the laws of California.             In  our  view,  Northeast's  Chapter 93A  claims  (with  one             exception)  fall  within   this  contractual   choice-of-law             provision.                       Northeast  describes its  Chapter 93A  claims and,             most importantly, the alleged facts that underlie them in an             82  page  document,   filed  with  the  magistrate,   called             "Plaintiff's Request for Findings of Fact and Rulings of Law             on Chapter 93A Damages."  Our review of the facts alleged in             that  document  makes clear  that  (as  we  said,  with  one             exception)  Northeast's  93A  claims  amount  to embroidered             "breach  of contract" claims.  See Caton v. Leach., 896 F.2d                                            ___ _____    ______             939, 943 (5th Cir. 1990)  (breach of implied covenant claims             are  breach  of contract  claims);  Restatement  (Second) of                                                 ________________________             Contracts     176  comment  e (1981).    In  four  instances             _________             Northeast   simply  says   that  Microdata   "knowingly"  or             "willfully" broke  the contract by (1)  failing "to provide"             proper "field  service and support;" (2)  failing to deliver             goods when and  as promised; (3)  selling goods outside  the             "sole  distributorship" without paying  commissions; and (4)             wrongfully  terminating  the  contract.     In  three  other             instances  Northeast says that  Microdata threatened to take                                         -6-                                          6             actions that the contract forbids, with a bad motive, namely             to  force Northeast to give up certain contract rights, such             as  its  exclusive  Reality distributorship.    Those  badly             motivated threats (as far  as the document reveals) threaten             actions that  Microdata might  legally have taken  had there             been no contract, for they consist of claims  that Microdata             threatened  (1) to deny Northeast  the right to sell certain             "Reality"  products  (such as  a  product called  "Sequel");             (2) to   sell  a   competing  product   (called   "CMC")  in             Northeast's  exclusive  territory; and  (3)  (in unspecified             ways) to  stop Northeast  from meeting  its contract-imposed             buying quota.                       Of  course, the  allegations that  Microdata acted             "willfully"  or  "knowingly"  or   with  a  bad  motive  add             something to  the pure breach  of contract claims.   Indeed,             Northeast  hopes  they  provide the  element  of "rascality"             needed to bring  a claim  of breach of  contract within  the             statute. Compare Pepsi-Cola  Metropolitan Bottling Co., Inc.                      _______ ___________________________________________             v. Checkers, Inc., 754  F.2d 10, 18 (1st Cir.  1985) (simple                ______________             breach of contract  does not violate Chapter 93A)  with Wang                                                                ____ ____             Laboratories, Inc.  v. Business Incentives  Inc., 501 N.E.2d             __________________     _________________________             1163 (Mass.  1986) (bad faith contract  termination states a             Chapter 93A  claim) and Levings  v. Forbes &  Wallace, Inc.,                                 ___ _______     _______________________                                         -7-                                          7             396  N.E.2d 149  (Mass. 1979)  (93A violations  must involve             "rascality").   But, the  relevant question here  is whether             those additional "state of mind" or "bad motive" allegations             (together with  other, less significant bits  of embroidery)             take these claims outside  the scope of contractual language             that  says  California  law  will  govern  "the  rights  and             obligations of  the parties" in respect  to the "Agreement."             We find that they do not.                        The contract violations  are essential elements of             the  93A claims.    The "state  of  mind" and  "bad  motive"             allegations  add   little.    Given  the   language  of  the             contract's choice-of-law provision (applying  California law             to "rights  and obligations" arising out of,  or imposed by,             the "Agreement"), would it not  seem surprising to find that             Massachusetts  law,  not   California  law,  governed  these             claims?  In the absence of any contrary evidence, we believe             that, when parties agree that "contract related" claims will             be tried under, say, the law of California, they do not mean             that  a  claim  of  "serious"  or  "rascal-like"  breach  of             contract will be tried under the law of Massachusetts.                        Moreover, the Massachusetts Supreme Judicial Court             has recognized that, under some circumstances, a Chapter 93A             claim "is  essentially duplicative of a traditional contract                                         -8-                                          8             claim."   See  Canal Electric  Co. v.  Westinghouse Electric                       ___  ___________________     _____________________             Corp., 548 N.E.2d  182, 187  (Mass. 1990).   That court  has             _____             permitted   plaintiffs  to   obtain  separate   Chapter  93A             attorneys'  fees in  such circumstances,  but it  has denied             plaintiffs "double  recovery" on  both a breach  of contract             claim and a  93A claim  arising from the  same breach.   See                                                                      ___             Linthicum  v.  Archambault,  389  N.E.2d  482  (Mass. 1979).             _________      ___________             These Massachusetts decisions support our natural reading of             the  scope of  the contract's  choice-of-law  provision, for             they acknowledge that, depending on the facts, a Chapter 93A             claim may  essentially  reduce to  a  contract claim.    One             federal district  court has  reached the same  conclusion we             reach with respect to a similar contract clause.  See Scheck                                                               ___ ______             v. Burger  King Corp.,  756 F.Supp.  543, 545-46  (S.D. Fla.                __________________             1991) (clause  which  says  franchise  agreement  "shall  be             governed and construed under and in accordance with the laws             of  the State of  Florida" applies to  bar Massachusetts 93A             claims which incorporate contract claims and would not exist             without the agreement).                       We have found one  district court case in Illinois             that reaches a different result.  Fleet Mgt. Servs., Inc. v.                                               _______________________             Archer-Daniels-Midland Co., Inc., 627 F.Supp. 550 (C.D. Ill.             ________________________________             1986).  That  district court reasoned that  any violation of                                                         ___                                         -9-                                          9             Chapter 93A is a "tort" and therefore no alleged Chapter 93A             violation  could  fall within  the  scope  of a  contractual             choice-of-law provision  that talks about "contracts."   Id.                                                                      __             at 561-62.  This reasoning, however, seems to exalt pleading             form  over  fact-related substance.    Such  reasoning would             undermine the parties' choice of law agreement by permitting             one  of  them, through  artful  pleading, to  bring  what is             little  more than a breach of contract claim, under law that             both parties have agreed would not apply.                         The  Illinois case  relied  upon  a  Massachusetts             district court  case, Computer Systems Engineering,  Inc. v.                                   ___________________________________             Qantel Corp., 571  F.Supp. 1365 (D.Mass. 1983),  a case very             ____________             different from  the present  one.   Qantel  concerned a  93A                                                 ______             claim  that was not, in essence, a breach of contract claim,                             ___             for the  plaintiff there did  not claim  that the  defendant             broke a contract, but rather that the defendant fraudulently             _____             induced the  plaintiff  to form  the contract  in the  first             _______                    ____             place.  See id.  at 1367 (Chapter 93A claim  partially based                     ___ __             on  fraudulent inducement);  see also  id. at  1370 (because                                          ___ ____  ___             tort-like  claims predominate  over contract-like  claims in             compound   93A  claim,   93A   claim  is   outside  parties'             agreement);  cf. Popkin  v. National Benefit  Life Insurance                          ___ ______     ________________________________             Co., 711 F.Supp. 1194,  1201-02 (S.D.N.Y. 1989) (Chapter 93A             ___                                         -10-                                          10             tort claim alleging  fraudulent misrepresentations to  third             party  with whom  plaintiff had  a different  contract falls             outside  choice-of-law clause  in  agency agreement  between             plaintiff and defendant).  Insofar as Qantel contains dicta,                                                   ______             Qantel, 571 F.Supp. at 1371, that might be read to mean that             ______                            _____             every  Chapter 93A claim must be viewed  as a tort claim, no             _____             matter  how  clearly it  resembles  a  claim  of  breach  of                     ___             contract,   those  dicta   do  not   express  our   view  of             Massachusetts law.                        We conclude that the  parties, in their choice-of-             law provision,  meant that California law  would govern both             ordinary and  "rascal-like" breach  of contract claims.   We             believe that  the "rascal-like" claims before  us fit within             that  provision.  In the  absence of a  conflict with public             policy,  Massachusetts  honors  choice-of-law provisions  in             contracts,  Morris  v. Watsco,  Inc.,  433  N.E.2d 886,  888                         ______     _____________             (Mass. 1982),  and,  in this  diversity  case, so  must  we.             Borden v. Paul Revere Life Ins. Co., 935  F.2d 370, 375 (1st             ______    _________________________             Cir. 1991).  There is no  conflict with Massachusetts public             policy  here.  The  "dispute is essentially  a private one,"             which, unlike, say, an antitrust dispute, has no third-party             effects.  Cf.   Canal  Electric,   548   N.E.2d  at   187-88                       ___   _______________                                         -11-                                          11             (corporations may  waive protection  of  93A by  contractual             limitation of liability clause).                       We turn now to  the one further 93A claim  that we             called  an  "exception."    That special  claim  rests  upon             allegations  of fraud,  not breach  of contract.   Northeast             says  that Microdata, when  negotiating the contract, failed             to disclose that it was currently selling Reality systems to             ADP,    a   firm   that   does   business   in   Northeast's             distributorship  area, and  that  it  intended  to  continue             selling  to  ADP  even after  the  contract  was in  effect.             Northeast  says that  this course  of  conduct amounts  to a             "fraud"  that  falls  within  the scope  of  Chapter  93A.               Because this claim concerns the validity of the formation of                                                             _________             the contract, it cannot be  categorized as one involving the             rights or  obligations arising  under the contract.   Hence,             the  claim  falls   outside  the  contract's   choice-of-law             provision.  See Qantel, 571 F.Supp. at 1372.    Nonetheless,                         ___ ______             Microdata, in  its brief,  refers us  to  the docket  sheet,             which  notes  that Northeast  agreed,  in  a settlement,  to             stipulate   that  "none  of"   Microdata's  "actions  w[ith]             r[eference]  t[o] ADP can form  the basis of  liability."  A             district  court memorandum  confirms  that, as  part of  the             consent  judgment, Northeast  "agreed that  if the  Court of                                         -12-                                          12             Appeals should reverse  the judgment dismissing  plaintiff's             Chapter 93A claim (Count X of the Second Amended Complaint),             plaintiff will not  press as part of  that claim any  of the             defendant's actions with respect to ADP."  The appeal,  with             respect to this remaining ADP claim, therefore is moot.  See                                                                      ___             Pontarelli  v. Stone,  978  F.2d 773,  775  (1st Cir.  1992)             __________     _____             (settlement of merits of underlying claims moots appeal).                        Finally, we  note that  Northeast, in its  82 page             document,  at one  point alleges  in a single  sentence that             Microdata violated  Chapter 93A  by "filing  and prosecuting             frivolous  and  meritless   counterclaims  and   affirmative             defenses, without  any attempt to introduce  any evidence to             support  same  at  the  trial  of  this  action."    Because             Northeast does not separately press this claim on appeal, we             suspect that it has been abandoned.   But, if it has not, we             simply point out  that a  claim of "abuse  of process"  with             nothing  more does not state a violation of Chapter 93A. See                                                                      ___             Quaker State Oil Refining v. Garrity Oil Co., 884 F.2d 1510,             _________________________    _______________             1514 (1st Cir. 1989)  and cases cited therein  (filing legal                                   _______________________             claim  which proves baseless  not in itself  an unfair trade             practice, except where claim brought with ulterior motive).                        For   these   reasons,   the  magistrate's   order             dismissing the Chapter 93A claims is                                          -13-                                          13                       Affirmed.                       ________                                         -14-                                          14