Uncle Henry's Inc. v. Plaut Consulting Co., Inc.

• Decision Date: 22 February 2005
• Docket Number: No. 03-2402.,No. 03-2454.,03-2402.,03-2454.
• Citation: 399 F.3d 33
• Parties: UNCLE HENRY'S INC., Plaintiff, Appellant/Cross-Appellee, v. PLAUT CONSULTING CO., INC., Defendant, Appellee/Cross-Appellant, Edgewing, a Division of Plaut Consulting Inc., Defendant.
• Court: U.S. Court of Appeals — First Circuit

399 F.3d 33

UNCLE HENRY'S INC., Plaintiff, Appellant/Cross-Appellee, v. PLAUT CONSULTING CO., INC., Defendant, Appellee/Cross-Appellant, Edgewing, a Division of Plaut Consulting Inc., Defendant.

No. 03-2402.

No. 03-2454.

United States Court of Appeals, First Circuit.

Heard August 2, 2004.

Decided February 22, 2005.

COPYRIGHT MATERIAL OMITTED

Edward P. Watt with whom Watt & Associates, P.C., Stephen C. Whiting and The Whiting Law Firm were on brief, for appellant.

Dale C. Kerester with whom John Dennis, Lynch, Brewer, Hoffman & Fink, LLP, James G. Goggin, Peter S. Black, and Verrill & Dana, LLP were on brief, for appellee.

Before TORRUELLA, DYK,^* and HOWARD, Circuit Judges.

HOWARD, Circuit Judge.

These cross-appeals relate to an agreement to create a website that went awry. Uncle Henry's, Inc. ("Uncle Henry's") contracted with Plaut Consulting Co., Inc. ("Plaut") to create a new website. When the desired website was not produced, Uncle Henry's terminated the contract and brought this action alleging breach of contract and various fraud-based claims. Plaut counterclaimed for quantum meruit and other relief. Plaut prevailed in part on summary judgment, and the parties effectively split on the claims that were tried to a jury. They both attempt to improve their results on appeal.

I.

We present a brief summary of the facts as the jury could have found them, or, for matters disposed of on summary judgment, as the summary judgment record compels us to take them. See Kenda Corp., Inc., v. Pot O'Gold Money Leagues, Inc., 329 F.3d 216, 225 (1st Cir.2003)(challenges to verdict); Hodgkins v. New England Telephone Co., 82 F.3d 1226, 1229 (1st Cir.1996)(summary judgment standard). We reserve a more detailed discussion of some facts for our analysis.

Uncle Henry's is a Maine corporation based in Augusta that publishes a "Swap or Sell It Guide." While best known in Maine, the guide is also distributed throughout New England and parts of Canada. Uncle Henry's president and sole shareholder is Joseph Sutton, who resides in Texas. His two sons, Justin and Jason, both residents of Maine, run Uncle Henry's day-to-day operations.

Uncle Henry's first website was launched in 1999, with the intent of expanding Uncle Henry's business to compete with e-Bay and Yahoo!. This first website was not as successful as the Suttons had hoped. Further, because it was developed piecemeal, its structure and development were very poorly documented. Ultimately, in the summer of 2000, Uncle Henry's sought to hire a website developer capable of creating a new and vastly improved website.

After considering certain other developers, Uncle Henry's selected Edgewing, a division of Plaut, to build its new website. Plaut is a Delaware corporation with its principal place of business in Atlanta, Georgia, and offices in various cities, including Waltham, Massachusetts. During extensive negotiations, the parties discussed such issues as "migrating" every feature from the existing website into the new site (albeit in an improved form) and the need to "reverse engineer" the existing site to determine its exact functions due to the shortcomings in the existing site's documentation. The negotiations took place primarily in Maine, although Justin and Jason Sutton made one visit to Plaut's Waltham facility. Uncle Henry's ultimately accepted Plaut's proposal to build the new website for $593,000.¹ Thereafter, the parties endeavored to reduce their understanding to a formal written contract, several versions of which passed among the parties and their respective attorneys.

The various versions of the contract included a generalized "master agreement" and a more specific "website development statement of work" ("SOW"), which included a scope matrix section that listed the various components of the proposed website (collectively the "contract"). All versions provided that the contract would be governed by Massachusetts law.

On October 20, 2000, Justin Sutton signed the then most recent version of the contract ("October contract") and sent Plaut two checks totaling $202,000. A $196,000 check represented the first payment on the website development agreement, and a $6,000 check represented the first payment on a separate website hosting agreement that the parties had entered into contemporaneously with the website development agreement.² The October contract contemplated a January 19, 2001 "go-live" (website completion) date. Plaut began work on the website development project in October, primarily in its Atlanta office. Plaut's original staff on the project became known as "Team I".

On October 30, 2000, Plaut notified Uncle Henry's that its counsel wished to make further changes to the contract. A subsequent version ("November contract"), signed by Plaut's President, Paul Shaughnessy, was sent to, but not signed by, Uncle Henry's. Further negotiations ensued. Ultimately, on December 7, 2000, after approval by Uncle Henry's counsel, Justin Sutton signed a revised version of the contract ("December contract"). Justin Sutton acknowledged at his deposition that this document represented the parties' agreement. Nevertheless, the signed version of the December contract was apparently never sent to Plaut. The December contract differed from the October contract in three significant respects: it limited Plaut's liability to Uncle Henry's to no more than the full contract price plus the value of any change orders (i.e., $645,100); capped recoverable attorney's fees at 20 percent of Plaut's maximum liability; and foreclosed consequential damages. A few weeks after signing the December contract, Uncle Henry's purchased Dell servers worth $77,382.99 for use with the new website and delivered them to Plaut's Waltham facility.

Uncle Henry's maintains that, during the course of the negotiations and shortly thereafter, Plaut made various misrepresentations regarding its capabilities, intentions, and the status of the project. Further complicating matters, during both the negotiation and contract period, third parties performed work on the existing website for Uncle Henry's. The parties dispute whether this outside work was further development of the site (including new features) or simply repairs and maintenance.

The parties' difficulties began in November during the design phase of the project. During this phase, Plaut attempted to get Uncle Henry's to "sign off" on certain functional specifications. Essentially, Plaut asked Uncle Henry's to agree that the only items that the new website needed to contain were those in a detailed list of functional specifications that Plaut generated. Plaut maintained that such a sign off was essential because Plaut could not create a new website unless it knew exactly what the site was to contain. Uncle Henry's was hesitant to agree, however, because it believed that the functional specifications tendered by Plaut did not include all the features from the original site that Uncle Henry's wanted incorporated. An impasse was reached, but Plaut continued to work on the site without a final approval of its listed functional specifications. As deadlines came and went, Plaut announced new completion dates, which also came and went. The design phase of the project was never completed.

On April 23, 2001, Uncle Henry's sent a formal notice of default to Plaut, triggering the 45-day cure period provided for in the contract. In the following weeks, there were heated negotiations for a new, modified contract, many of which took place between Joseph Sutton and Paul Shaughnessy. During this period, Plaut assembled a second project team ("Team II") to assess Team I's progress and determine how best to proceed on the project. Among the options considered was starting the project over from scratch. During this period, work on the website was transferred from Plaut's Atlanta office to its Waltham facility.³

The negotiations during this period appear to have been focused on the possibility of a new agreement that Plaut would create a website that had the features Uncle Henry's believed were required in the original agreement, but at an extended deadline date and for a sum approximately equal to the balance owed on the original contract. Plaut expended significant resources working to create such a website during this period. No new agreement was reached, however, and Uncle Henry's terminated the contract on July 18, 2001. The new Uncle Henry's website was completed by Stroudwater NHG ("Stroudwater") approximately one year later, at a cost to Uncle Henry's of $604,000 for the "basic" website and many hundreds of thousands of dollars more for additional features.

In due course, Uncle Henry's brought this diversity action against Plaut asserting violation of the Massachusetts Unfair Trade Practices Act, Mass. Gen. Laws ch. 93A ("Chapter 93A"), fraud, negligent misrepresentation,⁴ breach of contract, and conversion.⁵ Uncle Henry's also sought a declaratory judgment that the December contract's limitation clauses were unenforceable. Plaut responded with a number of counterclaims: breach of contract; breach of the duty of good faith and fair dealing; quantum meruit; and promissory estoppel. Plaut also sought a declaratory judgment that the December contract governed the parties' relationship.

After discovery, Plaut filed a motion for summary judgment or partial summary judgment on Uncle Henry's various claims. The motion was referred to a magistrate judge, who issued a report and recommendation on the motion for summary judgment and on a motion to reconsider filed by Uncle Henry's after his initial ruling.⁶ See Uncle Henry's, Inc. v. Plaut Consulting, Inc., 240 F.Supp.2d 63 (D.Me.2003).

The magistrate judge rejected Uncle Henry's Chapter 93A claim because the challenged activity did not "occur primarily and substantially in Massachusetts" — a statutory requirement. See id. at 80-82. In this respect, the magistrate judge looked to where the defendant...