PH Group Ltd. v. Birch

• Decision Date: 08 October 1992
• Docket Number: 92-1053,Nos. 92-1052,s. 92-1052
• Citation: 985 F.2d 649
• Parties: The PH GROUP LTD., f/k/a, Cognetics Europe Ltd, Plaintiff, Appellant, v. David L. BIRCH, et al., Defendants, Appellees. The PH GROUP LTD., f/k/a Cognetics Europe, Ltd., Plaintiff, Appellee, v. David L. BIRCH, Defendant, Appellee, Cognetics, Inc., Defendant, Appellant. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 649

985 F.2d 649

The PH GROUP LTD., f/k/a, Cognetics Europe Ltd, Plaintiff, Appellant, v. David L. BIRCH, et al., Defendants, Appellees.

The PH GROUP LTD., f/k/a Cognetics Europe, Ltd., Plaintiff, Appellee, v. David L. BIRCH, Defendant, Appellee, Cognetics, Inc., Defendant, Appellant.

Nos. 92-1052, 92-1053.

United States Court of Appeals First Circuit.

Heard Oct. 8, 1992.

Decided Feb. 17, 1993.

Edwin A. McCabe with whom Joseph P. Davis, III, Karen Chinn Lyons, and The McCabe Group, Cambridge, MA, were on brief for appellants.

Robert J. Kaler with whom Gadsby & Hannah, Boston, MA, was on brief for appellees.

Before BREYER, Chief Judge, BROWN, ^* Senior Circuit Judge, STAHL, Circuit Judge.

STAHL, Circuit Judge.

This case involves a failed attempt to license American-made computer software for use in Europe. On appeal, plaintiff The PH Group Ltd., formerly known as Cognetics Europe Ltd. ("PH"), challenges the district court's failure (1) to award it attorneys' fees and (2) to rule favorably on its claims of unfair and deceptive trade practices. Defendants Cognetics, Inc. ("Cognetics") and David L. Birch cross-appeal, taking issue with the district court's denial of their motion for judgment n.o.v. or a new trial on their counterclaims for breach of contract. ¹ Finding no error in the district court's rulings, we affirm.

I. FACTUAL BACKGROUND AND PRIOR PROCEEDINGS

David Birch developed computer software which analyzes Dun & Bradstreet data bases for business consulting purposes. ² In order to exploit this software in the United States, Birch and his associates formed Cognetics. PH was formed by Rolf Hickmann, Norbert Reis, and other individuals principally to develop a consulting business in Europe through the use of the Cognetics software. PH and Cognetics negotiated a license agreement ("the Agreement"), under which PH received the right to use the Cognetics name and software in Europe. For its part, Cognetics was to provide PH with both Dun & Bradstreet's European data bases and the Cognetics software to analyze them. The parties agreed that Massachusetts law would govern the Agreement's construction.

The Agreement was signed in January of 1987, and PH began doing business in Europe. Shortly thereafter, the same individuals who had formed PH incorporated Maven Systems, Ltd. ("Maven"). ³ The record reflects that Maven was formed to allow the individual owners of PH to pursue consulting business in Europe without using the Cognetics software. The Agreement clearly contemplates and allows for such outside activity. ⁴

Almost immediately, difficulties between the parties surfaced. Essentially, PH claimed that Dun & Bradstreet's European data bases differed from its American data bases, and that Birch and Cognetics knew, or should have known, that as a result of these differences the European data bases could not be analyzed effectively with Cognetics software. Cognetics, on the other hand, claimed that PH had violated the Agreement by improperly allowing Maven to use the Cognetics name in Maven's initial business dealings. By September 1987, each party was claiming that it had terminated the Agreement.

On April 22, 1988, PH sued Cognetics in diversity, alleging common law fraud, breach of contract, negligence, breach of an implied covenant of good faith and fair dealing, breach of an implied warranty of fitness for a particular purpose, and violation of Mass.Gen.Laws Ann. ch. 93A, §§ 2 and 11 (West 1984 and Supp.1992) (hereinafter referred to collectively as "ch. 93A"), which proscribe unfair and deceptive trade practices. PH sought $10 million in damages on these claims. The complaint also asked for a declaratory judgment that the Agreement's non-competition clause did not preclude PH from pursuing its now established European consulting business. ⁵

Cognetics counterclaimed, alleging breach of contract, misappropriation of trade secrets, unfair competition, violation of the Lanham Trade-Mark Act, 15 U.S.C.A. § 1125(a) (West Supp.1992), violation of Mass.Gen.Laws Ann. ch. 110B, § 12 (West 1990), which forbids trademark infringement, and violation of ch. 93A, § 11. Cognetics also sought injunctive relief to prevent further use of its name and proprietary materials.

The district court bifurcated the trial and tried all liability issues first. After directing verdicts against several of the parties' substantive claims, the court submitted the following claims to the jury: (1) PH's claims for fraud, breach of contract, and breach of implied covenant of good faith and fair dealing; and (2) Cognetics' claims for misappropriation of trade secrets, and breach of contract. The claims and counterclaims under ch. 93A were tried to the court along with the requests for declaratory and injunctive relief.

The jury found against PH on all of its claims except for the claim of breach of an implied covenant of good faith and fair dealing. In the subsequent damages phase of the trial, notwithstanding the favorable verdict, the jury awarded PH zero damages on this claim. The jury found against Cognetics on all of its counterclaims. The district court found no violations of ch. 93A by either party and denied all requests for declaratory and injunctive relief. Finally, the court denied Cognetics' motion for judgment n.o.v. or new trial, and denied PH's motion for attorneys' fees.

II. DISCUSSION

A. PH's Appeal

1. PH's Claim for Attorneys' Fees

PH argues that it is entitled to attorneys' fees under section 21 of the Agreement ⁶ because it "prevailed" on its covenant of good faith and fair dealing claim. ⁷ As an initial matter, we note that the parties dispute whether this issue was properly preserved for appeal. Assuming without deciding that the issue was preserved, we find unpersuasive PH's contention that it was a "prevailing party" below.

Courts, both in Massachusetts and elsewhere, have uniformly required that a party succeed on a significant issue in order to be entitled to attorneys' fees. See, e.g., Handy v. Penal Insts. Comm'r of Boston, 412 Mass. 759, 592 N.E.2d 1303, 1307 (1992) (requiring that party in civil rights case "succeed[ ] on a significant issue" to be entitled to attorneys' fees); Fedele v. School Comm. of Westwood, 412 Mass. 110, 587 N.E.2d 757, 761 (1992) (same). See also Farrar v. Hobby, --- U.S. ----, ----, 113 S.Ct. 566, 569, 121 L.Ed.2d 494 (1992) (holding that "[w]hen a [civil rights] plaintiff recovers only nominal damages because of his failure to prove an essential element of his claim for monetary relief, the only reasonable [attorneys'] fee is usually no fee at all." (citation omitted)); Texas State Teachers Ass'n v. Garland Indep. Sch. Dist., 489 U.S. 782, 792, 109 S.Ct. 1486, 1493, 103 L.Ed.2d 866 (1989) (holding that civil rights plaintiff seeking attorneys' fees "must be able to point to a resolution of the dispute which changes the legal relationship between itself and the defendant. Beyond this absolute limitation, a technical victory may be so insignificant ... as to be insufficient to support prevailing party status."); Guglietti v. Secretary of Health and Human Servs., 900 F.2d 397, 399 (1st Cir.1990) (requiring either "bottom-line litigatory success" or "catalytic effect in bringing about a desired result" for social security plaintiff to be entitled to attorneys' fees). Moreover, outside of the civil rights context, an award of zero damages, supported by a rational basis in the record, is generally considered a judgment for defendant. See, e.g., Ruiz-Rodriguez v. Colberg-Comas, 882 F.2d 15, 17 (1st Cir.1989) (stating that award of zero damages is "commonly viewed as, in effect, a judgment for defendant"); Poulin Corp. v. Chrysler Corp., 861 F.2d 5, 7 (1st Cir.1988) (holding that, upon award of zero damages, "plaintiff has failed to establish an essential part of its proof, and judgment should have been entered for defendant."). Cf. Farrar, --- U.S. at ---- - ----, 113 S.Ct. at 573-74 ("Of itself, 'the moral satisfaction [that] results from any favorable statement of law' cannot bestow prevailing party status.... No material alteration of the legal relationship between the parties occurs until the plaintiff becomes entitled to enforce a judgment, consent decree or settlement against the defendant.") (quoting Hewitt v. Helms, 482 U.S. 755, 762, 107 S.Ct. 2672, 2676-77, 96 L.Ed.2d 654 (1987). The thrust of this authority renders unpersuasive PH's argument that the district court erred in finding that it was not a "prevailing party" under section 21 of the Agreement.

Moreover, PH has not proffered any evidence of the parties' intent in drafting section 21 of the Agreement. Nor has it argued, let alone demonstrated, that any construction other than the ordinary construction of the term "prevailing party" should apply. Accordingly, we find no error in the district court's holding that PH was not a "prevailing party" for purposes of section 21 of the Agreement.

2. PH's ch. 93A Claim

PH also argues that the district court's ruling that Cognetics did not violate ch. 93A is inconsistent as a matter of law with the jury's verdict that Cognetics breached the Agreement's implied covenant of good faith and fair dealing. Massachusetts courts have held, however, that a trial court's ruling on a ch. 93A claim may differ from a jury's verdict on common law claims involving the same evidence. Chamberlayne Sch. v. Banker, 30 Mass.App.Ct. 346, 568 N.E.2d 642, 648-49 (1991) ("Although consistency ... ha[s] a surface appeal, we think the broader scope and more flexible guidelines of ch. 93A permit a judge to make his or her own decisions under [ch.] 93A without being constrained by the jury's findings."). See also Turner v. Johnson & Johnson, 809 F.2d 90, 102 (1st Cir.1987) (interpreting Mass. law) (holding that jury's determination is not binding on court's ch. 93A decision); Wallace Motor Sales, Inc. v. American Motor Sales Corp., 780 F.2d 1049, 1063-67 (1st Cir.1985) (interpreting...