Court Opinion

ID: 194646
Source: CourtListenerOpinion
Date Created: 2011-02-07 02:21:54+00
Date Added: 2024-06-11T09:55:24.768017
License: Public Domain

March 31, 1993    UNITED STATES COURT OF APPEALS
               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.

                                   

                        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
                                        

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                             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

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                             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

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                             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

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                             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.,
                                                           

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                             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

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                             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
                                               

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                             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
   

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                             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
                               

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                             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

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                             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 

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          Affirmed.
                  

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