Computer Systems Engineering, Inc. v. Qantel Corp.

• Decision Date: 29 August 1983
• Docket Number: Civ. A. No. 79-1588-K.
• Citation: 571 F. Supp. 1365
• Parties: COMPUTER SYSTEMS ENGINEERING, INC., Plaintiff, v. QANTEL CORPORATION, Defendant.
• Court: U.S. District Court — District of Massachusetts

571 F. Supp. 1365

COMPUTER SYSTEMS ENGINEERING, INC., Plaintiff, v. QANTEL CORPORATION, Defendant.

Civ. A. No. 79-1588-K.

United States District Court, D. Massachusetts.

July 8, 1983.

As Modified August 29, 1983.

COPYRIGHT MATERIAL OMITTED

Thomas K. Christo, Christo & Watson, North Hampton, N.H., for plaintiff.

Ropes & Gray, Thomas G. Dignan, Jr., Roscoe Trimmier, Boston, Mass., for defendant.

Opinion

KEETON, District Judge:

Plaintiff, Computer Systems Engineering, Inc. ("CSE") brought suit against defendant, Qantel Corporation ("Qantel"), for breach of contract, fraud, and unfair and deceptive acts as defined in Mass.Gen.Laws ch. 93A, § 2, and for multiple damages and attorneys fees as provided by id., § 11. The ch. 93A claim was tried before the court, simultaneously with jury trial of the breach of contract and fraud claims. The jury found unanimously in response to special interrogatories that (1) Qantel committed a breach of its distributorship contract with CSE; (2) Qantel made fraudulent representations to induce CSE to enter into the original agreement of April 16, 1976 or a subsequent letter agreement of August 1, 1977; (3) losses caused by breach of contract and fraud are identical, and damages amount to $2,336,742; and (4) punitive damages of $15,000,000 should be awarded against Qantel for fraud.

Plaintiff is entitled to judgment on the verdict, on the breach of contract and fraud claims, for compensatory damages of $2,336,742. Before directing entry of final judgment, however, I must determine (1) whether Massachusetts or California law governs the claim for punitive damages and (2) whether a ch. 93A remedy is available to CSE and, if so, in what form and amount.

The parties agree that California law governs the contract claim. Contested choice of law issues involve CSE's fraud claim for punitive damages and CSE's ch. 93A claim.

I conclude (1) that under Massachusetts choice of law rules, Massachusetts law governs both the fraud claim and the ch. 93A claim; (2) that the jury's finding of punitive damages must be disregarded because punitive damages cannot be awarded in this case under Massachusetts law; and (3) that on the ch. 93A claim CSE is entitled to judgment in the amount of $4,673,484 plus attorney fees (with provisions against overlapping recovery on the various claims). Thus the total allowable recovery on all claims combined will be $4,673,484 plus attorney fees and costs.

I.

Under California law, punitive damages may be awarded for an intentional misrepresentation. Cal.Civ.Code § 3294(a). No comparable statutory provision exists in Massachusetts law.

Since subject matter jurisdiction in this action is founded upon diversity, the court must follow the choice of law rules of the forum state. Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). Massachusetts conflicts law therefore governs which law should apply on the issue of punitive damages.

It is clear that Massachusetts courts have begun to apply a "more functional" approach to choice of law issues in lieu of the traditional doctrine of lex loci delicti. See, e.g., Choate, Hall & Stewart v. S.C.A. Services, Inc., 378 Mass. 535, 392 N.E.2d 1045 (1979); Pevoski v. Pevoski, 371 Mass. 358, 358 N.E.2d 416 (1976). Although the Supreme Judicial Court has not explicitly adopted the position of the Restatement (Second) of Conflict of Laws on tort claims, it has indicated that it would look to the law of the jurisdiction having the strongest interest in resolving the particular issue presented. Pevoski, supra; see Engine Specialties, Inc. v. Bombadier Ltd., 605 F.2d 1, 19 (1st Cir.1979), cert. denied, 446 U.S. 983, 100 S.Ct. 2964, 64 L.Ed.2d 839 (1980); Schulhof v. Northeast Cellulose, Inc., 545 F.Supp. 1200, 1203 (D.Mass.1982). I conclude that a Massachusetts court would apply a test quite similar to if not identical with that of the Restatement (Second) to determine the law applicable in this case.

The parties agree that the general provision of the Restatement (Second) of Conflict of Laws most relevant to this inquiry is Section 148. Subsection (1) of that provision is limited to the situation where a plaintiff's action in reliance occurs exclusively in the state in which the misrepresentations were made and received. Comment d. Subsection (2) applies to circumstances in which a plaintiff's action in reliance takes place in two or more states, such as where formation of the contract and performance occur in different states. Id. Subsection (2) lists six factors that the forum court should consider in determining the state which, as to a particular issue, has the most significant relationship to the occurrences and the parties.

Under the Restatement (Second) approach, it is first necessary to identify the place or places where the relevant events and contacts between the parties took place. With minor exceptions, the significant occurrences and contacts in this instance all took place in either California or Massachusetts. The fraudulent representations that induced CSE to sign the distributorship contract of April 16, 1976, or enter into the letter agreement dated August 1, 1977, occurred partly in California and partly in Massachusetts. Among those representations were statements in Qantel brochures as to the nature of Qantel's product — brochures that were sent from Qantel's headquarters in California to CSE's headquarters in Burlington, Massachusetts. These brochures were intended primarily for distribution to "end-users" (customers of the distributors). They were also part of Qantel's representations to CSE, however, since they were delivered to CSE by Qantel along with oral representations about Qantel's and CSE's respective roles in delivering to the end-user the product represented in the brochures. The product was a combination of computer hardware, software, and services. Qantel representatives also travelled to Massachusetts for the purpose initially of negotiating a contract between CSE and Qantel, and subsequently of encouraging CSE to continue its contractual obligations and renew the Qantel-CSE distributorship agreement. The evidence supports the conclusion that fraudulent representations were communicated at these personal meetings in Massachusetts. I take account also of evidence of misrepresentations in telephone communications involving both states, as well as misrepresentations received in California by CSE representatives who travelled to Qantel's headquarters there.

As these contacts show, contrary to Qantel's contention, Subsection (1) of the Restatement (Second) of Conflict of Laws § 148 clearly does not apply here. Since communication of the misrepresentations was divided between California and Massachusetts, Subsection (1) does not offer any guidance as to which state's law should govern. Turning to Subsection (2), I proceed to consider the relevant factors for determining the state with the "most significant relationship" to the transactions and the parties.

The first factor for consideration is the place or places where the plaintiff acted in reliance upon the defendant's representations. CSE's initial act of reliance consisted of entering into the distributorship contract of April 16, 1976. Although the contract was formally executed in California, negotiations leading to its formation took place in Massachusetts. Further acts of reliance occurred when CSE entered into the letter agreement of August 1, 1977, executed by Qantel on November 18, 1977 in California and mailed to CSE in Massachusetts. I find, however, that the major part of CSE's reliance took place in Massachusetts, consisting principally of its contractual performance under the Qantel distributorship contract, which gave CSE an exclusive sales territory within Massachusetts. According to the Restatement (Second) approach, "when a major part of a plaintiff's action in reliance takes place in one state and a lesser part in another, the first state has a more important contact with the occurrence than does the latter." Comment f. Moreover, the significance of the place of plaintiff's action in reliance is enhanced when this place is pursuant to an agreement between the parties or otherwise contemplated by the defendant. Id. This factor weighs heavily in favor of treating Massachusetts as the state having the most significant relationship to the transactions involved.

The second factor under the Restatement (Second) approach relates to the place where the representations were first communicated to the plaintiff; the third factor, to the place where the defendant made the false representations. These factors are of approximately equal importance. I find that the major aspects of the misrepresentations were first communicated to CSE in Massachusetts, in the course of personal meetings or by mail and telephone communications into the state. Taking account of both the Qantel brochures and the oral statements by Qantel representatives, I find that the place where the defendant made the representations was divided nearly evenly between Massachusetts and California. Assigning equal weight to these factors, I conclude that Massachusetts contacts are more significant than California contacts.

The remaining factors to be considered under the Restatement (Second) test also support a determination that the interests of Massachusetts outweigh those of California. With respect to the fourth factor, CSE is a corporation with its principal place of business in Massachusetts. The place of business of the plaintiff is significant because any financial loss is likely to be of greatest concern to the state having the closest relationship to the person or entity harmed. The fifth factor, which focuses on the location of any tangible thing that was the subject of the transaction between the parties, is not significant here. I have already addressed the sixth factor, namely, the place where CSE was to...