Okmyansky v. Herbalife Intern. of America, Inc.

• Decision Date: 15 July 2005
• Docket Number: No. 04-2607.,04-2607.
• Parties: Evgeny OKMYANSKY, Plaintiff, Appellant, v. HERBALIFE INTERNATIONAL OF AMERICA, INC., Defendant, Appellee.
• Court: U.S. Court of Appeals — First Circuit

415 F.3d 154

Evgeny OKMYANSKY, Plaintiff, Appellant, v. HERBALIFE INTERNATIONAL OF AMERICA, INC., Defendant, Appellee.

No. 04-2607.

United States Court of Appeals, First Circuit.

Heard June 7, 2005.

Decided July 15, 2005.

Joel Z. Eigerman, with whom Pavel Bespalko was on brief, for appellant.

Annapoorni R. Sankaran, with whom Gary R. Greenberg, Louis J. Scerra, Jr., and Greenberg Traurig, LLP were on brief, for appellee.

Before SELYA, Circuit Judge, HILL,^* Senior Circuit Judge, and LYNCH, Circuit Judge.

SELYA, Circuit Judge.

Plaintiff-appellant Evgeny Okmyansky claims an entitlement, contractually and under equitable principles, to certain commissions and royalties. The district court spurned the plaintiff's entreaties and granted summary judgment for defendant-appellee Herbalife International of America, Inc. (Herbalife). Okmyansky v. Herbalife Int'l of Am., Inc., 343 F.Supp.2d 57, 60-62 (D.Mass.2004). Concluding, as we do, that neither the contract between the parties nor any equitable doctrine warrants a different result, we affirm.

I. BACKGROUND

We rehearse the facts in the light most favorable to the summary judgment loser (here, the plaintiff), consistent with record support. Nereida-Gonzalez v. Tirado-Delgado, 990 F.2d 701, 702 (1st Cir.1993).

The defendant is a Nevada corporation that maintains its principal place of business in California. It manufactures weight-management products, dietary supplements, and other personal care items. The company markets its wares through a multi-level network of independent distributors, who can earn money through three channels. First, distributors purchase products from the company at a sizable discount, mark them up, and resell them to consumers. Second, distributors become sponsors by enlisting recruits (who, in the idiom of the trade, are known as "downline distributors") and earn commissions on products that these downline distributors purchase from the company. Finally, distributors benefit from the recruiting efforts of their downline distributors as the defendant pays royalties to sponsors based on purchases attributable to their recruits (who, in the idiom of the trade, become part of the initial distributor's "lineage"). The sustainability of this business model depends on ensuring that each downline distributor is assigned to a single sponsor.

The plaintiff, a foreign national who resided in Massachusetts between 1995 and 2003, became a Herbalife distributor by executing a distributorship contract (the Contract) on July 21, 1992. The parties agree that the Contract incorporates by reference the terms of Herbalife's career book, which contains both a sales and marketing plan (the Plan) lining the terms of compensation, and the rules of conduct and distributor policies (the Rules).¹

The Rules are of particular interest here. Pertinently, Rule 4-A specifies that "[a]n individual may have only one Herbalife Distributorship under one Sponsor." That command is designed to prohibit dual distributorships, that is, the pairing of a single downline distributor with more than one sponsor. Rule 4-C speaks to the parties' rights in the event of a violation of Rule 4-A:

If Herbalife determines that an individual has signed an Application for Distributorship, or has worked or assisted in the development of another Distributorship. . . while obligated to a prior Distributorship, Herbalife has sole and absolute discretion to determine the disposition of both Distributorships, as well as any penalties or sanctions it deems necessary and appropriate for the Distributorship and the Sponsoring organization(s).

Rule 4-C also states that the first sponsor to recruit a distributor and have him execute a contract with the defendant "is considered the valid Distributorship."

Other generally applicable provisions of the Rules cede broad discretion to the defendant with respect to violations of the Rules. For example, Rule 8-L stipulates that when an infraction has occurred, the defendant "may in its sole discretion take whatever actions or measures it deems necessary and appropriate, including but not limited to ... suspension of earnings." Similar language in Enforcement Procedure 1-G says that, should a violation occur, the defendant, "[i]n its sole and absolute discretion ... may impose any remedy or sanction it determines best addresses the issue."

In 1994, the plaintiff alerted the defendant that as many as twenty-eight of his downline distributors had been enticed by pirate sponsors to sign second distributorship agreements in violation of the prohibition on dual distributorships. He requested, inter alia, that the defendant restore to him the commissions and royalties attributable to these downline distributors. The defendant's response was painfully slow; for a period of approximately four years, it investigated the entangled lineages. The defendant eventually determined that certain of the identified downline distributors had belonged in the plaintiff's lineage. By letter dated February 9, 1999, the defendant informed the plaintiff that it would restore these downline distributors to his lineage on a going-forward basis, but without "monetary adjustments." Put bluntly, the defendant refused to compensate the plaintiff for the commissions and royalties that had been misallocated during the currency of the dual distributorships.

II. TRAVEL OF THE CASE

On February 24, 2003, the plaintiff brought suit in a Massachusetts state court alleging breach of contract. In an amended complaint, he added counts based on quantum meruit, promissory estoppel, and implied contract.

Noting the diverse citizenship of the parties and the existence of a controversy in the requisite amount, the defendant removed the case to the federal district court. See 28 U.S.C. §§ 1332(a), 1441. Following a period of pretrial discovery, the district court directed the parties to file cross-motions for summary judgment. The parties complied.²

The cross-motions placed the parties at loggerheads. The plaintiff argued that summary judgment ought to be entered in his favor because the Contract entitled him to the diverted payments. For its part, the defendant argued that it was entitled to judgment as a matter of law because its decision not to compensate the plaintiff for the bygone purchases made by the disputed downline distributors and their progeny was within the discretion conferred by the Contract. In due course, the lower court granted the defendant's motion and denied the plaintiff's cross-motion. The court concluded that under the plain terms of the Contract, it was within the defendant's discretion to refuse to reallocate the diverted payments and, therefore, no breach of contract had occurred. Okmyansky, 343 F.Supp.2d at 61-62. This timely appeal ensued.

III. ANALYSIS

On appeal, the plaintiff advances two sets of arguments in support of his claim of error. First, he asserts that the Contract obligated the defendant to recompense him for the diverted payments. As a subset of this argument, he maintains that he had fully complied with the Rules, so the defendant was not at liberty to exercise its contractual discretion to extinguish the payment obligation.³ Second, he asseverates that even if the Contract does not protect him, he is entitled to recovery on an equitable basis. After delineating the standard of review, we address each of these arguments in turn.

A.

Standard of Review.

A nisi prius court may grant summary judgment whenever "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). These components are familiar: an issue is genuine if "a reasonable jury could resolve the point in favor of the nonmoving party," United States v. One Parcel of Real Prop., 960 F.2d 200, 204 (1st Cir.1992), and a fact is material if it "has the capacity to sway the outcome of the litigation under the applicable law," Nat'l Amusements, Inc. v. Town of Dedham, 43 F.3d 731, 735 (1st Cir.1995).

After the moving party has averred that no genuine issue of material fact stands in the way of brevis disposition, the nonmovant bears the burden of demonstrating the movant's error. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Once the court is persuaded that no such dispute exists, summary judgment is appropriate so long as the applicable law entitles the movant to prevail. See Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).

We review a grant of summary judgment de novo. Noviello v. City of Boston, 398 F.3d 76, 84 (1st Cir.2005). In conducting this review, we peruse the record in the light most amiable to the appellant, drawing all reasonable inferences in his favor. Nat'l Amusements, 43 F.3d at 735. We are not wed to the lower court's rationale but, rather, may affirm the entry of summary judgment on any ground made manifest by the record. Houlton Citizens' Coalition v. Town of Houlton, 175 F.3d 178, 184 (1st Cir.1999).

B.

The Breach of Contract Claim.

The parties agree that the Contract, consisting of the distributorship agreement, the Plan, and the Rules, is valid and that its language controls the resolution of this case. They also agree that state substantive law applies in this diversity action and that our choice of law must be guided by the choice-of-law tenets of the forum state (here, Massachusetts). See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). The parties disagree, however, on which state's substantive law a Massachusetts court would apply; the plaintiff favors Massachusetts law, while the defendant extols the virtues of California law.

This is a tempest in a teapot. The parties concede that the approach to interpreting the Contract...