Northeast Data Systems, Inc. v. McDonnell Douglas Computer Systems Co.

• Decision Date: 05 November 1992
• Docket Number: No. 92-1690,92-1690
• Citation: 986 F.2d 607
• Parties: NORTHEAST DATA SYSTEMS, INC., Plaintiff, Appellant, v. McDONNELL DOUGLAS COMPUTER SYSTEMS COMPANY, Defendant, Appellee. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 607

986 F.2d 607

NORTHEAST DATA SYSTEMS, INC., Plaintiff, Appellant, v. McDONNELL DOUGLAS COMPUTER SYSTEMS COMPANY, Defendant, Appellee.

No. 92-1690.

United States Court of Appeals, First Circuit.

Heard Nov. 5, 1992.

Decided March 2, 1993.

Rehearing and Rehearing En Banc Denied

March 31, 1993.

Roger S. Davis with whom Nancy Pitnof-Mahoney and Davis, Rubin & Parker, P.A., Boston, MA, were on brief, for plaintiff, appellant.

Frederick W. Rose with whom Gianfranco A. Pietrafesa, and Young, Rose, Imbriaco & Burke, P.C., Parsippany, NJ, were on brief, for defendant, appellee.

Before BREYER, Chief Judge, CYR and BOUDIN, Circuit Judges.

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 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

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 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). 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 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., 398 Mass. 854, 501 N.E.2d 1163 (1986) (bad faith contract termination states a Chapter 93A claim) and Levings v. Forbes & Wallace, Inc., 8 Mass.App. 498, 396 N.E.2d 149 (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 claim." See Canal Electric Co. v. Westinghouse Electric Corp., 406 Mass. 369, 548 N.E.2d 182, 187 (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, 379 Mass. 381, 398 N.E.2d 482 (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...