Computer Systems Engineering, Inc. v. Qantel Corp.

Decision Date11 September 1984
Docket Number83-1748,Nos. 83-1747,s. 83-1747
Citation740 F.2d 59
Parties16 Fed. R. Evid. Serv. 907 COMPUTER SYSTEMS ENGINEERING, INC., Plaintiff, Appellee, v. QANTEL CORPORATION, Defendant, Appellant. COMPUTER SYSTEMS ENGINEERING, INC., Plaintiff, Appellant, v. QANTEL CORPORATION, Defendant, Appellee.
CourtU.S. Court of Appeals — First Circuit

Thomas K. Christo, North Hampton, N.H., with whom Robert G. Watson, North Hampton, N.H., was on brief, for Computer Systems Engineering, Inc.

Jack E. Brown, Phoenix, Ariz., with whom Eugene D. Cohen, Lawrence G.D. Scarborough, Bonnie P. Tucker, John W. Rogers, Victoria S. Lewis, Jessie T. Martori, Brown & Bain, P.A., Phoenix, Ariz., Jeffrey Swope, John T. Harding, Jr., Palmer & Dodge, Boston, Mass., Patricia A. Durham, Justin T. Beck, and H. Les Holt, Hayward, Cal., were on brief, for Qantel Corporation.

Before COFFIN and ALDRICH, Circuit Judges, and GIGNOUX, * Senior District Judge.

GIGNOUX, Senior District Judge.

In this diversity action, before us on appeal from the United States District Court for the District of Massachusetts, Computer Systems Engineering, Inc. (CSE), a Massachusetts corporation, brought suit against Qantel Corporation (Qantel), a California corporation, for breach of contract, fraud, and unfair or deceptive acts and practices as defined in Mass.Gen.L.Ann. ch. 93A, Sec. 2 (West 1984), and for multiple damages and attorney's fees as provided by id. Sec. 11. 1 The chapter 93A claim was tried before the court (Keeton, J.), simultaneously with a jury trial of the breach of contract and fraud claims. In response to special interrogatories, the jury found that (1) Qantel breached its distributorship contract with CSE; (2) Qantel's fraudulent representations induced CSE to enter into the original distributorship contract of April 16, 1976, or a subsequent extension thereof by a letter agreement dated August 1, 1977; (3) CSE sustained the same compensatory damages under each theory of liability in the amount of $2,336,742 ($1,129,842 actual losses and $1,206,900 lost profits); and (4) punitive damages of $15,000,000 should be awarded against Qantel for fraud. 2

After the jury returned its verdict, Judge Keeton decided the choice-of-law issues upon which he had reserved ruling prior to submitting the case to the jury. After further briefing and oral argument, he filed a comprehensive opinion, in which he concluded that Massachusetts, and not California, law governed both the fraud claim for punitive damages and the chapter 93A claim; he therefore set aside the jury's punitive damage award because punitive damages could not be recovered for common-law fraud under Massachusetts law. See Computer Systems Engineering, Inc. v. Qantel Corporation, 571 F.Supp. 1365, 1367-71 (D.Mass.1983). Judge Keeton then proceeded to determine the chapter 93A claim. He ruled, both viewing the evidence entirely independently of the jury's finding and accepting the jury's verdict as advisory, that Qantel had made false material representations to CSE with reckless disregard for their truth or falsity; that CSE reasonably relied upon these representations; that Qantel's conduct constituted a violation of chapter 93A, Sec. 2; that Qantel was entitled to recover under chapter 93A; that CSE had sustained compensatory damages of $2,336,742, the same amount as awarded by the jury; and that the chapter 93A violation was "willful or knowing," entitling CSE to double damages under chapter 93A, Sec. 11. Id. at 1371-78. After further briefing and oral argument, Judge Keeton entered a second memorandum and order, making additional findings of fact to support his award of double damages to CSE on its chapter 93A claim denying Qantel's motion for judgment n.o.v. or for a new trial; awarding CSE $267,025 attorney's fees on the chapter 93A claim; and denying CSE's claim for pre-verdict interest. See Computer Systems Engineering, Inc. v. Qantel Corporation, 571 F.Supp. 1379 (D.Mass.1983) (partial publication). In accordance with these rulings, judgment was entered for CSE in the total sum of $4,997,544.50.

Presently before us are Qantel's appeal and CSE's cross-appeal. After reviewing the record, we find no error and affirm the judgment of the district court.

Factual Background

Qantel is a manufacturer of small business computers. On April 16, 1976, Qantel and CSE entered into a written distributorship agreement granting CSE an exclusive territory in the Boston area for the sale of computer systems manufactured by Qantel. That agreement was extended by a letter agreement dated August 1, 1977, executed by Qantel on November 18, 1977. In August 1978, Qantel terminated CSE's distributorship because of CSE's failure to sell its quota of computers in accordance with the agreement. CSE then brought this suit.

The controversy in this case centers around a computer software package 3 called SOLUTIONS. In order for a computer to be useful to an end user, sufficient software must be provided. CSE alleged that under the distributorship agreement it was to be a distributor of Qantel computer systems, and that SOLUTIONS was to be the software portion of the package Qantel was to furnish for sale by CSE. More particularly, CSE claimed that Qantel had obligated itself to and represented that it would provide a "turnkey" 4 software package called SOLUTIONS for CSE to sell with the hardware. Qantel strenuously denied assuming any such obligation or making such a representation. It asserts that its only obligation was to furnish the hardware.

Both the judge and jury found, and Qantel does not now dispute, that the SOLUTIONS software made available to CSE during the relevant period was not sophisticated enough to be sold to end users without substantial modifications. The judge and jury also found, and the evidence supports the finding, that representatives of Qantel repeatedly assured CSE during the relevant period that Qantel would provide turnkey software, that SOLUTIONS had only a few bugs in it, and that a turnkey version would be available very shortly. The evidence also supports the further finding of the judge and jury that Qantel was aware at all relevant times that in actuality SOLUTIONS would require very substantial modifications before it could be called turnkey. 5

I. QANTEL'S APPEAL

Qantel's appeal presents the following questions for our consideration: the sufficiency of the evidence to support the findings for CSE on the breach of contract, fraud, and chapter 93A claims; the sufficiency of the evidence to support the award of compensatory damages to CSE; the meaning of the phrase "willful or knowing" as used in Mass.Gen.L.Ann. ch. 93A Sec. 11; the district court's alleged abuse of discretion in denying Qantel's motion for a new trial based on (1) the submission of the punitive damages issue to the jury, (2) the improper closing argument of CSE's counsel, and (3) the allegedly false testimony of CSE's president.

A. The Sufficiency of the Evidence on the Breach of Contract, Fraud, and Chapter 93A Claims

In paragraph 3(f) of the 1976 distributorship agreement, Qantel agreed to "[p]rovide marketing direction and guidance as required." The thrust of CSE's breach of contract claim was that Qantel failed to provide "marketing direction and guidance" as required by paragraph 3(f). CSE's position is that this provision required Qantel to furnish CSE with a software package that was turnkey. CSE supported its interpretation of paragraph 3(f) by parol evidence, which included testimony regarding representations made by Qantel during the negotiation of the distributorship agreement that it would provide turnkey software; evidence that Qantel furnished to CSE for delivery to end users brochures describing SOLUTIONS as turnkey; evidence that, after execution of the agreement, Qantel assured CSE that SOLUTIONS would "soon be fixed"; and evidence that Qantel had placed responsibility for the development of SOLUTIONS in its marketing department. Qantel argues that parol evidence on the interpretation of paragraph 3(f) was improperly admitted. It contends that its distributorship contract with CSE was a fully integrated agreement that expressly excluded any responsibility for providing a software package and that it should have been so interpreted by the court as a matter of law rather than being submitted to the jury. Further, Qantel argues that if the contract expressly precluded any responsibility of Qantel to provide software, the fraud and chapter 93A claims must also fall, since CSE would be unable to establish justifiable reliance on representations which contradicted the written terms of the distributorship agreement. See Nei v. Burley, 388 Mass. 307, 311, 446 N.E.2d 674, 677 (1983); Brockton Olympia Realty Co. v. Lee, 266 Mass. 550, 557-58, 165 N.E. 873, 876 (1929). 6

Qantel neglected to make these arguments below. In fact, Qantel requested the court to instruct the jury that it was for them to interpret disputed contract language and that in interpreting such language, "the intent of the parties may be determined by their acts and express understandings, particularly where they have acted under the contract for a period of time." It is true that because the parol evidence rule is a rule of substantive law, see Cal.Civ.Code Proc. Sec. 1856(a) (West 1983); Tahoe National Bank v. Phillips, 4 Cal.3d 11, 22-24, 480 P.2d 320, 328-30, 92 Cal.Rptr. 704, 713-14 (1971), 7 Qantel was not required to "pepper the record with objections" whenever such evidence was introduced in order to preserve the issue for appeal. See Chelsea Industries, Inc. v. Accuray Leasing Corp., 699 F.2d 58, 62 (1st Cir.1983). Qantel was required, however, to make known to the trial court its positions concerning the parol evidence rule and the court's obligation to interpret the contract as a matter of law. We have...

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