-
USCA1 Opinion
UNITED STATES COURT OF APPEALS UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT FOR THE FIRST CIRCUIT
____________________
Nos. 95-1690
95-1913
SCOTT P. HAMMOND,
Plaintiff, Appellee, Cross-Appellant,
v.
T.J. LITLE & COMPANY, INC.,
Defendant, Appellant, Cross-Appellee.
____________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Zachary Karol, U.S. Magistrate Judge] _____________________
____________________
Before
Cyr, Circuit Judge, _____________
Bownes, Senior Circuit Judge, ____________________
and Stahl, Circuit Judge. _____________
____________________
Anthony M. Feeherry, with whom Paula M. Bagger and Goodwin, ____________________ ________________ ________
Procter & Hoar were on brief for appellant. ______________
Michael J. Liston with whom Glass, Seigle & Liston was on brief _________________ _______________________
for appellee.
____________________
April 30, 1996
____________________
BOWNES, Senior Circuit Judge. This appeal arises BOWNES, Senior Circuit Judge. _____________________
out of a dispute over the compensation terms of an employment
contract. Appellee/Cross-Appellant Scott P. Hammond
("Hammond") filed suit after he was discharged by
Appellant/Cross-Appellee T.J. Litle & Company, Inc. ("the
Company"), alleging that the Company had breached certain
terms of his employment contract entitling him to shares of
stock in the Company, and the implied covenant of good faith
and fair dealing. After a bifurcated trial in which certain
issues were decided by the jury and others by the magistrate
judge, the Company appeals and Hammond cross-appeals.
Finding no error, we affirm.
I. BACKGROUND
In the spring of 1986, Thomas J. Litle ("Litle")
was starting up the Company and Hammond was about to graduate
from the Harvard Business School. On May 4, 1986, Litle
orally offered Hammond the position of Vice President of
Finance and Administration, with a compensation package
including a current annual cash salary of $45,000, the right
to purchase a maximum of 100 shares of non-voting founders'
stock in the Company at a subscription price of $1.00 per
share, and deferred compensation of $10,000 per year to be
converted to additional shares of stock at Hammond's option.
Hammond accepted the package with the understanding that
there would be further negotiation regarding both a vesting
-2- 2
schedule for the 100 shares and the repurchase rights the
Company would have with respect to vested shares upon
termination of his employment.
Hammond began employment with the Company on June
9, 1986. In July of 1986, the Company's outside counsel sent
Hammond, at his request, a draft Stock Restriction Agreement
and a draft Repurchase Agreement. Hammond then met with
Litle to discuss the draft agreements and requested a more
favorable vesting schedule for his 100 shares than that
reflected in the draft Repurchase Agreement. Litle agreed,
approving the change with a handwritten note. According to
the vesting schedule thus agreed upon, 16% of the shares
would vest on March 31, 1987, 2% would vest each month from
April 1, 1987 through February 28, 1990, and 14% would vest
on March 31, 1990. Litle and Hammond agreed that the draft
agreements were acceptable in all other respects. In August
of 1986, outside counsel prepared and sent Hammond execution
copies of the agreements. The Repurchase Agreement
incorporated the new vesting schedule, and the Stock
Restriction Agreement provided that a stockholder whose
employment was terminated "for cause" was required to tender
his vested shares to the Company for repurchase at fair
market value.
In September of 1986, Hammond and Litle met for the
purpose of executing the agreements, but Hammond unexpectedly
-3- 3
requested a number of substantive changes. Based on his
belief that the parties had completed negotiations, Litle
rejected Hammond's proposed changes and the agreements were
not signed.
In a letter to Hammond dated March 31, 1987, Litle
took the position that agreement had not yet been reached
regarding Hammond's stock participation. Hammond became
upset and refused to report for work until the issue was
settled. At a meeting on April 14, 1987, Litle told Hammond
that he could acquire a maximum of 66 2/3 shares of stock,
that 25% of the shares would vest on each anniversary of
Hammond's employment date of June 9, 1986, and that before
half of the shares (33 1/3) would begin to vest according to
that schedule, Hammond would have to meet certain as yet
undefined performance standards. Hammond became angry and
refused to accept the changes. In a letter to Hammond dated
April 17, 1987, Litle memorialized the same terms, chastised
Hammond for his recent behavior, warned him that a recurrence
would be deemed a tender of resignation that would probably
be accepted, but encouraged him to attempt to redeem himself.
The new terms also were confirmed in a letter from General
Manager Bruce Alemian ("Alemian") to Hammond dated July 13,
1987. The evidence was in dispute regarding whether Hammond
ever accepted the new terms. The Company contended that he
did by reporting to work and tendering a check for $66.67.
-4- 4
Hammond contended that he continued to insist on 100 shares,
and tendered $100 but paid $66.67 because that was all Litle
would accept.
At a meeting in December of 1987, Hammond again
complained that he believed he was entitled to acquire 100
shares. In an effort to settle matters, Alemian gave Hammond
a positive performance review and offered him the 33 1/3
performance shares if he would relinquish his claim to a full
100 shares. Hammond refused and Litle withdrew the offer of
the performance shares. On January 27, 1988, Hammond was
terminated.
II. PRIOR PROCEEDINGS
In a Second Amended Complaint, Hammond alleged that
the Company had breached that part of his employment contract
entitling him to acquire shares of stock in the Company by
breaching the implied covenant of good faith and fair
dealing, terminating his employment because he refused to
accept Litle's unilateral alteration of his contract rights,
refusing to issue him the 100 shares due him under the
agreement, and refusing to issue him additional shares for
deferred compensation.
By agreement of the parties, the trial was
bifurcated into a jury phase and a jury-waived phase. Phase
I was tried to a jury in June, 1994. The issues for the jury
were: (1) whether Hammond and the Company had entered into a
-5- 5
contract entitling Hammond to acquire company stock; and (2)
if so, how many shares Hammond was entitled to receive upon
termination of his employment. Through answers to special
questions submitted by the court, the jury found that the
parties had entered into a contract and that Hammond was
entitled to 48 shares.
Phase II was tried to the court in December, 1994,
in order to resolve two remaining issues: (1) whether
Hammond had an obligation to offer the 48 shares back to the
Company for repurchase; and (2) whether the Company had an
obligation to issue 5 additional shares to Hammond in lieu of
deferred compensation. On June 7, 1995, the magistrate judge
issued a memorandum of decision, answering both questions in
the negative.
III. DISCUSSION
The Company appeals the jury's determination that
Hammond was entitled to 48 shares, and the magistrate judge's
determination that Hammond had no obligation to offer the
shares back for repurchase. Hammond cross-appeals,
challenging the magistrate judge's conclusion that the
Company need not issue him shares in lieu of deferred
compensation.
A. The Jury's Determination That ______________________________
Hammond Was Entitled To 48 Shares _________________________________
The jury, answering special questions submitted by
the court, found that Hammond and the Company had entered
-6- 6
into an agreement in May of 1986 entitling Hammond to 100
shares of the Company's stock upon his acceptance of the
Company's offer of employment; that this contract was last
amended in the summer of 1986; and that Hammond was entitled
to 48 shares of stock as of the date his employment was
terminated.1
The Company concedes that there was evidentiary
support for the jury's determination that a contract for 100
shares was formed in May of 1986 and was last modified by the
vesting schedule agreed upon in the summer of 1986, but
contends that there was no evidence to support the jury's
finding that Hammond was entitled to 48 shares.
The court had instructed the jury that if it found
(as it did) that a contract for 100 shares was formed in May
of 1986 and that it was last amended in the summer of 1986,
then it should determine the number of shares to which
Hammond was entitled according to one of three alternatives:
First, the jury could award Hammond at least 36 shares, which _____
represented the number of shares that had vested between June
of 1986 and January 31, 1988, according to the vesting
schedule reflected in the execution copy of the Repurchase
____________________
1. Hammond had argued that the contract was never modified
after May of 1986 so that he was entitled to all 100 shares.
The Company had argued that no contract was ever formed, but
that if there was a contract, it was last amended in April of
1987 as reflected in Alemian's letter of July 13, 1987. The
jury rejected these alternatives.
-7- 7
Agreement prepared in August of 1986.2 Second, the jury ______
could award Hammond 100 shares if it found that the contract
contained an implied term that Hammond would have a fair
opportunity to earn all 100 shares and that the Company had
breached that term by firing him without cause.3 If the
jury found that there was such an implied term, but that
there was cause for terminating Hammond, then he would be
entitled to only 36 shares.4 Third, the jury could award _____
Hammond some number of shares greater than 36 if it found
that he was an at-will employee who could be terminated with
or without cause; that the Company terminated him "without
cause or in bad faith for the purpose of preventing him from
____________________
2. According to that vesting schedule, 16 shares vested as
of March 31, 1987, and 2 additional shares vested for each of
the next 10 months through Hammond's termination on January
31, 1988, for a total of 36 shares.
3. This instruction was based on Anthony's Pier Four, Inc. __________________________
v. HBC Assocs., 583 N.E.2d 806 (Mass. 1991), in which the ______________
Supreme Judicial Court stated that "the implied covenant of
good faith and fair dealing provides 'that neither party
shall do anything that will have the effect of destroying or
injuring the right of the other party to receive the fruits
of the contract.'" Id. at 820 (citations omitted). __
4. The court defined "cause," consistent with the definition
set forth in Goldhor v. Hampshire College, 521 N.E.2d 1381, _____________________________
1385 (Mass. App. Ct. 1988), as meaning that "there is a
reasonable basis for the employer to be dissatisfied with the
employee's performance, entertained in good faith, for
reasons such as lack of capacity or diligence, failure to
conform to usual standards of conduct, or other culpable or
inappropriate behavior, or grounds for discharge reasonably
related, in the employer's honest judgment, to the needs of
the business . . . [w]hether or not you agree with the
employer's judgment."
-8- 8
getting his shares;" and that "some additional amount of
shares was intended to compensate Mr. Hammond not for further
services to be performed after January 31, 1988, but for
having accepted employment with the Company back in May or
June of 1986 [and] foregoing other possible employment
opportunities."5
The Company contends that the jury must have based
its verdict on the third alternative under the instructions
since it awarded Hammond neither 36 nor 100 shares, but that
there was no evidence that any number of shares was intended
to compensate Hammond for accepting employment with the
Company and foregoing other opportunities. The Company did
not object to the instruction that invited the verdict of 48
shares, and explicitly does not quarrel with that instruction
on appeal. It concedes that it forfeited its right to a new
trial by not moving for one in the district court pursuant to
Fed. R. Civ. P. 59(a), but asks that we remand to the
district court with instructions to enter judgment for 36
____________________
5. This instruction was based on Massachusetts case law
applying the implied covenant of good faith and fair dealing
to allow recovery of compensation already earned where an
employer terminates an at-will employee in bad faith for the
purpose of depriving him of compensation already earned,
e.g., Cataldo v. Zuckerman, 482 N.E.2d 849 (Mass. 1985); ____ _____________________
Fortune v. Nat'l Cash Register Co., 364 N.E.2d 1251 (Mass. ____________________________________
1977), or without cause and not in bad faith but with the
effect of depriving the employee of compensation already
earned, Gram v. Liberty Mut. Ins. Co., 461 N.E.2d 796 (Mass. _____________________________
1984); Gram v. Liberty Mut. Ins. Co., 429 N.E.2d 21 (Mass. ______________________________
1981).
-9- 9
shares. As Hammond correctly points out, however, the
Company also forfeited its right to a judgment for other than
48 shares by failing to raise the issue in a motion for
judgment as a matter of law. Fed. R. Civ. P. 50(a), (b).
It is beyond peradventure that in order to
challenge the sufficiency of the evidence on appeal, a party
must first have presented the claim to the district court,
either by moving for judgment as a matter of law before the
case is submitted to the jury and renewing that motion after
the verdict, Fed. R. Civ. P. 50(a), (b), or by moving for a
new trial pursuant to Fed. R. Civ. P. 59. See Scarfo v. ___ __________
Cabletron Sys., Inc., 54 F.3d 931, 948 (1st Cir. 1995); _____________________
Velazquez v. Figuero-Gomez, 996 F.2d 425, 426-27 (1st Cir.), __________________________
cert. denied, 114 S. Ct. 553 (1993); La Amiga del Pueblo, ____ ______ ______________________
Inc. v. Robles, 937 F.2d 689, 691 (1st Cir. 1991); Pinkham v. ______________ __________
Burgess, 933 F.2d 1066, 1070 (1st Cir. 1991); Jusino v. _______ _________
Zayas, 875 F.2d 986, 991-92 (1st Cir. 1989); Wells Real _____ ___________
Estate, Inc. v. Greater Lowell Bd. of Realtors, 850 F.2d 803, ______________________________________________
810 (1st Cir.), cert. denied, 488 U.S. 955 (1988). ____ ______
Otherwise, we have no decision of the district court to
review, and will not review the weight of the evidence for
the first time on appeal. La Amiga, 937 F.2d at 691; Wells, ________ _____
850 F.2d at 810. The Supreme Court has stated that an
appellate court is "without power to direct the District
Court to enter judgment contrary to" the verdict absent a
-10- 10
Rule 50 motion in the district court. Cone v. West Virginia ______________________
Pulp & Paper Co., 330 U.S. 212, 218 (1947). ________________
Here, the Company did not bring the asserted error
to the district court's attention in any way. After
Hammond's case but before the close of all the evidence, the
magistrate judge informed counsel that he intended to
instruct the jury that it could award Hammond any shares it
found were intended as consideration for his accepting the
Company's offer if it also found that the Company acted in
bad faith or without cause in discharging Hammond. The
Company argued at that point that there was no evidence to
support such an instruction but never renewed the argument by
objecting to the instruction after it was given, or by moving
for judgment as a matter of law or for a new trial on that
basis.6 At the close of all the evidence, the Company moved
for judgment as a matter of law, but argued only that there
was insufficient evidence that a contract to purchase 100
shares of stock was ever formed, or that if a contract was
formed, it was the one for 66 2/3 shares memorialized in
Alemian's letter to Hammond dated July 13, 1987.
____________________
6. We do not mean to imply that a failure to object to an
instruction bars our review of a claim of insufficiency of
the evidence if the appellant has moved in the district court __
for judgment as a matter of law or for a new trial. See ___
Boyle v. United Technologies Corp., 487 U.S. 500, 513-14 _____________________________________
(1988); St. Louis v. Praprotnik, 485 U.S. 112, 120 (1988) ________________________
(plurality opinion of O'Connor, J., joined by Rehnquist,
White and Scalia, JJ.).
-11- 11
We do not think that this motion reasonably can be
read as encompassing the argument that no reasonable jury
could return a verdict including any shares intended as
consideration for Hammond's accepting the Company's offer.
See Wells, 850 F.2d at 810 (motion for judgment as a matter ___ _____
of law must "be made with sufficient specificity to allow the
district judge to understand precisely why the evidence is
insufficient" and "[a]ppellate review may be obtained only on
the specific ground stated in the motion"). Even if it could
be so read, it would not help the Company because it did not
renew the motion after the verdict. See Fed. R. Civ. P. ___
50(b); Velazquez, 996 F.2d at 426-27. _________
The Company complains that it could not have moved
for judgment as a matter of law on the grounds asserted here
because the standard requires that the evidence be "such that
a reasonable person could be led to only one conclusion,
namely that the moving party is entitled to judgment as a
matter of law." Johnson v. Nat'l Sea Prods., Ltd., 35 F.3d __________________________________
626, 630 (1st Cir. 1994). The Company asserts that its
argument that the jury could not as a matter of law conclude
that Hammond was entitled to 48 shares was not amenable to
that standard because the jury could have reached several
conclusions -- that Hammond was entitled to 8.34, 16, 36,
66.67 or 100 shares.
-12- 12
The Company misreads our statement in the Johnson _______
case. A party may move for judgment as a matter of law on an
issue by issue basis; it does not have to be all or nothing.
See Fed. R. Civ. P. 50(a)(1). The Company knew before the ___
case went to the jury, when it first should have made the
argument it now presses, that the magistrate judge's
instruction would allow the jury to find that some number of
shares was intended as consideration for Hammond's acceptance
of the Company's offer. The Company could have argued then
and after the verdict, as it has here, that the evidence was
legally insufficient to support such a finding.7 By failing
to do so, it forfeited the claim.
We therefore review only for plain error resulting
in a manifest miscarriage of justice, see Simon v. Navon, 71 ___ ______________
F.3d 9, 13 (1st Cir. 1995), and find that there was none.
"It is fundamental to our system of jurisprudence that, when
the evidence as a whole can plausibly support more than one
view of a situation, '[j]urors, using common sense and
collective experience assess credibility and probability, and
proceed to make evaluative judgments, case by case.'" La __
Amiga, 937 F.2d at 691 (citations omitted). Though we see no _____
evidence of an explicit agreement that 12 shares were
____________________
7. The Company also could have moved for a new trial or a
remittitur under Fed. R. Civ. P. 59 on that basis. See 11 ___
Charles A. Wright et. al, Federal Practice and Procedure _______________________________
2805, 2815 (1995).
-13- 13
intended as consideration for Hammond's accepting the
Company's offer of employment, there was evidence that before
accepting the offer, Hammond discussed with Litle how much
compensation he would need to forego his other offers, and
that his almost exclusive concern regarding compensation was
shares of stock, not cash salary. Alternatively, the jury
may simply have found that a contract was formed and last
amended in the summer of 1986, but that neither the minimum
of 36 shares nor the maximum of 100 shares was appropriate.
We doubt that such an outcome constitutes error at all in
this particular case, and it clearly does not amount to a
manifest miscarriage of justice. We therefore will not
disturb the verdict, particularly because the Company failed
to preserve the argument for appeal. See Braunstein v. ___ ______________
Massachusetts Bank & Trust Co., 443 F.2d 1281, 1285 (1st Cir. ______________________________
1971).
B. The Magistrate Judge's Determination ____________________________________
That Hammond Had No Obligation To Offer _______________________________________
The Shares Back For Repurchase ______________________________
After Phase II of the trial, the magistrate judge
found, based on the evidence and the jury's finding that the
parties had reached agreement regarding vesting during the
summer of 1986, that the parties had reached agreement at the
same time on all essential terms regarding stock restrictions
and repurchase rights, that those terms were reflected in the
execution copies of the Repurchase and Stock Restriction
-14- 14
Agreements prepared by the Company's outside counsel in
August of 1986, and that the parties deemed execution of the
final versions of the written agreements to be a mere
formality and not a condition to the effectiveness of their
agreements. The Stock Restriction Agreement provided in
relevant part that:
[i]n the event the Corporation terminates
the employment of the Stockholder for
cause, the Stockholder shall within five
(5) days after such termination offer in
writing all of the Shares then owned by
him . . . to the Corporation for purchase
at [fair market value].
The magistrate judge concluded that Hammond had no duty to
offer his shares back to the Company for repurchase because
although the Company had offered evidence showing "at most,
that [it] had grounds to terminate Hammond for cause," it had
"not . . . in fact opted to do so."8
Alemian, who made the decision to terminate
Hammond, testified that he decided to fire Hammond in part
because he had not completed the monthly financial statements
____________________
8. The magistrate judge correctly ruled that the Statute of
Frauds, U.C.C. 8-319, did not bar enforcement of the
repurchase provision of the Stock Restriction Agreement
against Hammond. Hammond stated in his pleadings that an
oral contract was formed in May of 1986 for the purchase of
100 shares of stock and testified that he understood the
contract to be subject to further negotiation regarding
vesting and stock restriction issues; the repurchase
provision therefore was an integral part of a contract
Hammond admits was made and that he sought to enforce. See ___
Mass. Gen. L. ch. 106, 8-319(d). The Company does not
contend that the Statute of Frauds would prevent enforcement
of any part of the contract against it.
-15- 15
for September through December of 1987, but primarily because
of his inability to overcome his negative feelings about the
stock situation. Alemian testified that Hammond's own
motivation and ability to motivate others had suffered in
April of 1987 when Litle first proposed the reduced stock
package, but that he was able to function properly after
Litle warned him. In December of 1987, Alemian began to
observe the same frustration in Hammond. He explained the
basis of his decision to discharge
-16- 16
Hammond on January 27, 1988, as follows:
I felt that he was never going to be able
to get beyond his frustration and
disagreement with the contractual change,
and that that ultimately was impacting on
his ability to perform in the company at
the level that one would expect from a
CFO and one of three or four top
management people in the organization.
Much of that performance would not only
relate to specific duties, but also
projections to the rest of the
organization and setting . . . a positive
tone in the company. I just didn't feel
that he could get beyond that, and that,
in fact, the company's well-being would
be jeopardized at that point if I allowed
the situation to go forward.
Alemian further testified that other than the performance
problems stemming from the dispute over the shares of stock,
Hammond's performance had been fully adequate, and that if he
did not believe that Hammond was of value to the Company, he
would not have attempted to settle the matter on prior
occasions.9
Alemian and Hammond both testified about what
Hammond was told when he was terminated on January 27, 1988.
Alemian testified that after he told Hammond that his
employment was terminated as of that date, Hammond asked if
it was because of his performance, and Alemian replied that
____________________
9. The Company also presented the testimony of three of its
employees describing deficiencies in Hammond's management and
accounting methods, but these witnesses were lower level
employees who took no part in the decision to fire Hammond,
and most of what they described was not observed by or
communicated to Hammond's superiors.
-17- 17
"it was not." Rather, he "told him that the relationship
issues between he [sic] and the chairman of the company Tim
Litle had reached a point in my mind where the conflict
between the two was in the way of the continued development
of the company." Alemian testified that he "did not say to
him that he was being terminated for cause," and that Litle
had not instructed him to tell Hammond that he was being
terminated for cause.
Hammond testified that after Alemian said that he
was terminated, he said, "I presume this has nothing to do
with my performance, it's because I'm not agreeing to the
stock cut," and Alemian responded, "Yeah, that's correct,
it's not your performance, it's the fact that you have this
dispute with the chairman of the company and it can't
continue and you've got to go. We can't get rid of the
chairman of the company."
Based on the foregoing evidence of the
circumstances surrounding Hammond's termination, the
magistrate judge stated:
[W]hether or not the Company had grounds
to terminate Hammond for cause, and
whether or not its decision to terminate
Hammond, although not communicated to him
at the time of termination, was the
result of its disappointment with his
performance, the Company deliberately
chose not to attempt to exercise its
right to terminate Hammond for cause.
Instead, no doubt with the hope of
avoiding an immediate confrontation, it
-18- 18
elected to exercise its alternative right
to terminate him without cause.
In addition to the fact that Alemian specifically
told Hammond that he was not being terminated because of his
performance, the magistrate judge relied on a letter the
Company sent to Hammond on February 19, 1988. The letter
confirmed events regarding his termination but gave "no hint
that Hammond was terminated for cause." Although Hammond had
not tendered his vested shares to the Company, the Company
did not demand that he do so in the letter or otherwise. The
letter stated that the Company was exercising its "right" to
purchase Hammond's unvested shares and enclosed a check for
those shares, but said only that it was "prepared" to discuss
repurchasing his vested shares and invited Hammond to contact
the Company "if" he wished to discuss such repurchase. The
magistrate judge found that the "precatory language"
regarding the vested shares in a letter sent 19 days after
the effective date of Hammond's termination could "not be
squared with the Company's present contention that Hammond
had a duty to offer his shares to the Company within five ____
days of his termination." Finally, the magistrate judge
relied on the fact that the Company's by-laws permitted the
Board of Directors to remove an officer "with or without
cause," but if removed for "cause," the officer was to be
given notice and opportunity to be heard by the Board of
-19- 19
Directors, and Hammond was not given notice or an opportunity
to be heard.
The Company appeals the magistrate judge's ruling
that Hammond was not terminated for cause, claiming two
alternative errors of law. The Company argues that under
Massachusetts law it is the objective existence of cause, and
not the reason the employer communicates to the employee upon
termination, that controls the determination of whether the
employee was discharged for cause. Alternatively, the
Company contends that if what the employer tells the employee
does control, then the magistrate judge applied an overly
narrow definition of "cause" by relying only on Alemian's
denial that he was terminating Hammond for inadequate
performance, and ignoring that Alemian also told Hammond that
he was being terminated because of his "relationship issues"
with Litle. Hammond responds that the magistrate judge's
determination that the Company chose not to terminate him for
cause was a finding of fact with ample record support.
Though the magistrate judge's conclusion was a finding of
fact, the issues the Company raises question whether, in so
finding, the magistrate judge considered the wrong factors or
misdefined "cause" as a matter of Massachusetts law. We
address these claimed errors of law de novo. Juno SRL v. S/V __ ____ _______________
Endeavour, 58 F.3d 1, 4 (1st Cir. 1995). _________
-20- 20
The Company principally relies on Klein v. _________
President and Fellows of Harvard College, 517 N.E.2d 167 ___________________________________________
(Mass. 1987), for its contention that it is the objective
existence of cause, and not what the employer tells the
employee upon termination, that controls the determination of
whether the employee was discharged for cause. In Klein, the _____
trial court found that the dean had terminated the plaintiff
as if she were an at-will employee who could be discharged
for any reason within a three-month probationary period, but
that she had an employment agreement for a definite period of
time and therefore could be terminated only for cause. Id. __
at 169. According to the trial court, her termination as a
probationary employee therefore was a breach of her
employment contract. The Supreme Judicial Court reversed,
ruling that the plaintiff's dismissal was for cause. The
plaintiff, who was an administrative director at Harvard's
school of public health, had strained and acrimonious
relationships with faculty members and had been evaluated by
them as being unhelpful, difficult to work with and a poor
administrator. Id. at 168. The dean terminated Klein __
because of her poor performance and a particularly
disparaging memorandum she had written about one faculty
member. Id. Although the dean did not recite those reasons __
in his formal letter of termination (stating only that
"regretfully, we have to terminate your services"), he did
-21- 21
discuss them with Klein in a meeting four days before he
issued the letter. The court stated:
The important point is that the _______________________
plaintiff, notwithstanding the letter of
dismissal, knew why her employment was _____________________________
terminated. . . . Any notions the __________
plaintiff might have entertained that she
was doing her work diligently and
competently and that her conduct was
appropriate were reasonably dispelled on
March 24th, when the dean met with her _______________________
and discussed her job performance and _________________________________________
"ill-considered" memorandum to the _________________________________________
executive committee. ___________________
Id. at 170 (emphasis added). __
Thus, Klein stands for the proposition that, when _____
an employee may only be terminated for cause, whether the
employer so informs the employee plays a decisive role in a
court's later determination of whether the employee was
discharged for cause (unless, of course, the stated reason
was a pretext). We think that the same principle applies
where, as here, an employee may be terminated without cause,
but other rights and duties under the employment contract
depend on whether the employee is terminated for cause. The
interpretation of Massachusetts law sought by the Company
would allow an employer to enter into an employment contract
spelling out rights and duties that hinge on whether the
employee is terminated for cause, then tell the employee that
he is not being terminated for cause, then seek the benefits
of a termination for cause by articulating cause as its
-22- 22
reason in any ensuing litigation. As Klein indicates, that _____
is not the law.
The Company urges that Cort v. Bristol-Myers Co., __________________________
431 N.E.2d 908 (Mass. 1982), also supports the proposition
that its stated reason for terminating Hammond is irrelevant.
In Cort, the plaintiffs, who were at-will employees, were ____
fired after they refused to answer part of a company
questionnaire which they regarded as invading their privacy.
Although the plaintiffs' performance records were good, they
were notified that they were being discharged for poor
performance. Id. at 909. The plaintiffs then sued, claiming __
that they were terminated in bad faith because the employer
gave a pretextual reason for discharging them, and that the
real reason -- their refusal to complete the questionnaire --
was contrary to public policy. Id. at 911. The Supreme __
Judicial Court held that "an at-will employee discharged
without cause does not have a claim for damages simply
because the employer gave him a false reason for his
discharge," id., and that firing the plaintiffs for their __
incomplete answers to the questionnaire violated no principle
of public policy. Id. at 912. The court explained, however, __
that the fact that an employer gave a false reason would be
relevant if by giving it the employer was attempting to
conceal its real reason for discharge and the real reason
violated public policy. Id. at 911 n.6. Thus, according to __
-23- 23
Cort, an employer's stated reason is irrelevant where no ____
consequences flow from either the real reason or the stated
false reason. But where, as here, consequences flow from
whether the termination was for cause, the employer's stated
reason is determinative, assuming it is not pretextual.
The Company contends that King v. Driscoll, 638 _________________
N.E.2d 488 (Mass. 1994), also supports its position. In
King, the employer's real and stated reason for terminating ____
King was that he participated in a shareholder derivative
suit against the company. Id. at 491. The Supreme Judicial __
Court reversed the trial court's ruling that this reason
violated public policy. Id. at 492-93. It upheld the trial __
court's conclusion that the employer had not violated its by-
laws by not providing King notice and a hearing as required
in a termination for cause, because King was terminated
without cause. Id. at 495. The court rejected King's __
contention that the legitimate business reasons the employer
proffered at trial showed that he was terminated for cause,
finding that the employer likely would not have advanced
those reasons but for King's claim that he was terminated in
violation of public policy. Id. __
King hardly supports the Company where it ____
articulated Hammond's poor performance as the reason for his
discharge, not when it let him go, but after he filed suit 10
months later. True, Litle discussed performance issues with
-24- 24
Hammond in September of 1986, April of 1987, and October of
1987, but those problems centered primarily around the stock
dispute and there was ample evidence that Alemian and Litle
nonetheless valued Hammond as an employee and that his
performance improved after he was warned. When Hammond was
terminated in January of 1988, Alemian affirmatively stated
that his performance was not the reason. As the magistrate
judge stated, "there was no evidence that, when the boom was
actually lowered, the Company advised Hammond that he was in
fact being terminated for cause." Assuming the Company could
have terminated Hammond for cause, it chose not to act on
that basis, and cannot erase the choice it made by
articulating different reasons in the course of litigation.
That brings us to the Company's alternative
argument -- that if the employer's stated reason does
control, the magistrate judge defined "cause" too narrowly by
relying only on Alemian's denial that performance was the
basis for his termination, and ignoring that he also told
Hammond that the reason was his "relationship issues" with
Litle, which the Company contends also constitutes "cause"
under Massachusetts law. "Cause" for termination includes:
(1) a reasonable basis for employer
dissatisfaction with a[n] . . . employee,
entertained in good faith, for reasons
such as lack of capacity or diligence,
failure to conform to usual standards of
conduct, or other culpable or
inappropriate behavior, or (2) grounds
for discharge reasonably related, in the
-25- 25
employer's honest judgment, to the needs
of his business. Discharge for "just
cause" is to be contrasted with discharge
on unreasonable grounds or arbitrarily,
capriciously, or in bad faith.
Goldhor v. Hampshire College, 521 N.E.2d 1381, 1385 (Mass. _____________________________
App. Ct. 1988) (citations omitted).
We think that the magistrate judge well understood
that this definition embraces reasons other than performance,
and so instructed the jury. See note 4, supra. Rather than ___ _____
misperceiving the meaning of cause, the magistrate judge
obviously found that the only basis for cause supported by
the evidence was inadequate performance, stemming from the
stock dispute or otherwise, but that the Company specifically
eschewed that as its reason. According to Alemian's and
Hammond's testimony, Hammond was terminated, at best, because
he had "relationship issues" with Litle, or at worst, because
he refused to accept the reduced stock package. The latter
reason could well be viewed as a termination in bad faith for
the purpose of depriving Hammond of shares to which he was
entitled, which, of course, does not constitute just cause.
And according to our reading of Massachusetts law, a
"relationship issue" is not, without more, cause for
termination.
The Company cites Klein and Goldhor in support of _____ _______
its contention that when an employee holds a managerial or
supervisory position, a "relationship issue" or "personality
-26- 26
conflict" may properly be considered cause for termination.
The Company mischaracterizes Klein as so holding because the _____
employee in that case was terminated for poor performance.
In Goldhor, the director of a research center at Hampshire _______
College had an intense difference of opinion with a tenured
professor about how funds were to be raised for the center.
Goldhor, 521 N.E.2d at 1383. This led to a public power _______
struggle, with each demanding that the other leave the
center, and the president of the college deciding that the
director would have to leave since the professor was tenured.
Id. at 1383-84. The Massachusetts Appeals Court held that __
the trial court improperly directed a verdict for the college
because it did not follow termination procedures contained in
the employee manual. Id. at 1382. The court indicated that __
if the issue of "just cause" was reached on retrial, the
plaintiff's conflict with the professor would be an
appropriate consideration, but did not indicate that it would
be controlling. Id. at 1385. Moreover, in contrast to __
Goldhor, Hammond's disagreement with Litle was not over how _______
any aspect of the business was run, but concerned the terms
of his employment contract. As already noted, Hammond's
resistance to what he believed to be a breach of his
employment contract could not be considered "just cause" for
his termination. That aside, the conflict in this case had
not risen to the level, as in Goldhor, where Litle and _______
-27- 27
Hammond could not continue to work together. As Litle
testified, he had no intention of terminating Hammond and did
not call for his termination, but simply accepted Alemian's
recommendation that he be terminated. Finally, we note
(though the magistrate judge did not mention it) that the
jury's finding that Hammond was entitled to 48 shares
necessarily included a finding that the Company terminated
Hammond either without cause or in bad faith for the purpose
of preventing him from getting his shares.
In sum, we think the magistrate judge correctly
found that the only reason the Company may have had to
terminate Hammond that amounted to just cause under
Massachusetts law was Hammond's performance, that it chose
not to terminate him for that reason and told him so, and
that he therefore had no obligation to sell his shares back
to the Company.
C. The Magistrate Judge's Determination That _________________________________________
The Company Had No Obligation To Issue ______________________________________
Hammond Shares In Lieu Of Deferred ______________________________________________
Compensation ____________
In their joint pretrial memorandum, the parties
stipulated that Hammond had a contractual right to convert,
at his option, his accrued deferred compensation into stock,
and that if he properly exercised his option, he was entitled
to 5 shares. The issue for Phase II of the trial was whether
Hammond properly exercised his option by filing his lawsuit
10 months after his employment was terminated. The
-28- 28
magistrate judge ruled that Hammond had not exercised his
option within a reasonable time by filing his lawsuit 10
months after his discharge, that even then the prayers for
relief in Hammond's complaint did not constitute an attempt
to exercise his option, and that he had failed to carry his
burden of proving that it would have been futile to attempt
to exercise his option at or nearer the time he was
terminated.
Hammond first claims that the magistrate judge
erred as a matter of law in construing the contract as
requiring him to exercise his option during his employment or
within a reasonable time of his termination. He claims that
the time frame for the exercise of his option was as long as
his compensation remained deferred. Because there was no
explicit agreement between the parties as to when Hammond was
required to exercise his conversion right, the magistrate
judge was called upon to decide whether Hammond exercised it
within a "reasonable time." See Bushkin Assocs., Inc. v. ___ _________________________
Raytheon Co., 815 F.2d 142, 146 (1st Cir. 1987) ("when a _____________
contract is silent as to time, the term shall be a reasonable
time based on all the relevant evidence."). The magistrate
judge's determination that he did not was a finding of fact
subject to the clearly erroneous standard of Fed. R. Civ. P.
52(a). See, e.g., Crellin Technologies, Inc. v. ___ ____ __________________________________
Equipmentlease Corp., 18 F.3d 1, 9 (1994) (what amount of ____________________
-29- 29
time is reasonable in a particular case is a "classic
example" of a decision that the law leaves to the district
court); Flagship Cruises, Ltd. v. New England Merchants Nat'l _____________________________________________________
Bank, 569 F.2d 699, 702 (1st Cir. 1978) ("The reasonableness ____
of a period of time except as to extremes would seem to be a
classic issue for the trier of fact."); Cataldo, 482 N.E.2d _______
at 857 n.20 (question whether buyback option was exercised
within a reasonable time "was peculiarly appropriate for
decision by the factfinder"). Hammond argues that in making
that factual determination, the magistrate judge impliedly
interpreted the contract to require him to exercise his
option within a reasonable time of his employment rather than
at any time while the compensation remained deferred. This,
Hammond argues, was a question of law, Fashion House, Inc. v. ______________________
K Mart Corp., 892 F.2d 1076, 1083 (1st Cir. 1989), subject to ____________
de novo review. __ ____
Recognizing that the magistrate judge's
determination that Hammond did not act within a reasonable
period was a finding of fact that contained a ruling of law,
we find that the magistrate judge erred neither as a matter
of law nor as a matter of fact because the ruling was well-
supported by the "nature of the contract, the probable
intention of the parties as indicated by it, and the
attendant circumstances." Charles River Park, Inc. v. Boston __________________________________
Redevelopment Auth., 557 N.E.2d 20, 32 (Mass. App. Ct. 1990). ___________________
-30- 30
Hammond's right to convert his deferred compensation into
stock, as memorialized in various documents (most of which
Hammond himself drafted), was described as the "employee's"
option or choice. Hammond urges that when he was terminated,
he was in the position of a non-employee investor holding
convertible debt keyed to the period during which the debt
remained outstanding. This is so, he argues, because the
Company's position was that he would not receive his deferred
compensation until the Company achieved a better cash flow
situation. Although that may have been the Company's
position with regard to paying cash for deferred ____
compensation, nothing in the record indicates that Hammond's
option to convert deferred compensation into stock was
similarly contingent. Even more to the point, nothing in the
record indicates that the Company intended that a former
employee could turn a simple deferred employee compensation
arrangement into a right to purchase stock at a very low
price at some time in the indefinite future when the stock
became far more valuable. As the magistrate judge found, the
stock valuation rate at the time Hammond was terminated was
such that the shares he would have received were worth far
less than the deferred compensation of $16,000 to which he
was entitled.10 The testimony at trial demonstrated that
____________________
10. Hammond could convert his deferred compensation into
stock at a "price equal to the stock's fair market value at
the time the deferred compensation was earned," but the price
-31- 31
other employees regarded as laughable the notion that anyone
would elect to accept stock in lieu of cash in March of 1988
when the Company began paying deferred compensation. The
magistrate judge correctly keyed the reasonable period of
time to Hammond's employment.
Hammond also claims that the magistrate judge's
failure to find as a matter of fact that the Company had
repudiated his contractual right to convert his deferred
compensation into stock, thus relieving him of any duty to
exercise his option, was clearly erroneous. Repudiation by
one party relieves the other party from further performance,
but such repudiation "'must be a definite and unequivocal
manifestation of intention [not to render performance].'"
Thermo Electron Corp. v. Schiavone Constr. Co., 958 F.2d __________________________________________________
1158, 1164 (1st Cir. 1992) (quoting 4 Arthur L. Corbin,
Corbin on Contracts 973, at 905-06 (1951)); see also ____________________ ___ ____
Restatement (Second) of Contracts 250 cmt. b (1981).
The magistrate judge did not err in failing to find
that the Company repudiated the contract. When Alemian
terminated Hammond on January 27, 1988, he offered Hammond
deferred compensation at a minimum rate of $2,000 per month
to be paid in cash as soon as the Company had sufficient
____________________
would be "no less than the latest price paid by investors."
The latest price paid by investors in early 1988 was $3,000
per share, which apparently was more than it actually was
worth at the time.
-32- 32
funds, but Hammond did not say at that point that he elected
to exercise his option to receive the deferred compensation
in the form of stock. Alemian followed up with a letter
dated February 19, 1988, in which he stated that the Company
was "prepared to discuss . . . payment of deferred
compensation," and asked Hammond to contact him if he wished
to discuss it. Hammond did not respond. Hammond complains
that Alemian did not mention his right to convert deferred
compensation to stock at his exit interview or in the letter,
but that does not mean that the Company repudiated its duty
to honor that right. It was Hammond's option to exercise,
and Hammond made no effort to do so until 10 months after he
was terminated.
Because the magistrate judge did not err in finding
that 10 months from Hammond's termination was not a
"reasonable time," we need not decide whether he correctly
found in the alternative that the prayer for relief in
Hammond's complaint did not constitute an exercise of his
option, or whether the Company later repudiated Hammond's
right to convert deferred compensation into stock in the
course of this litigation.
One matter remains. Shortly before oral argument,
Hammond moved this Court for leave to file a motion in the
district court pursuant to Fed. R. Civ. P. 60(a) to correct a
purported omission in the judgment, to wit, that the
-33- 33
magistrate judge ordered only that the Company was not
required to issue shares in lieu of deferred compensation but
failed to order the Company to pay Hammond his deferred
compensation in cash. The motion was denied without
prejudice to reconsideration by the panel hearing the merits.
We deny the motion because Hammond did not seek the relief of
being paid his deferred compensation in cash. This is
because whether the Company owed it in cash was not at issue.
As the magistrate judge found, the Company admitted that it
owed Hammond the deferred compensation, and the Company has
stated that it stands ready to pay Hammond $16,468.30 in cash
as soon as this appeal is decided.
For all of the foregoing reasons, the judgment is
affirmed. The parties shall bear their own costs of appeal. ________
-34- 34
Document Info
Docket Number： 95-1690
Filed Date： 5/1/1996
Precedential Status： Precedential
Modified Date： 9/21/2015