USCA1 Opinion

March 31, 1993

UNITED STATES COURT OF APPEALS

UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
FOR THE FIRST CIRCUIT
__________
__________

No. 92-1690
NORTHEAST DATA SYSTEMS, INC.
Plaintiff, Appellant,
v.
McDONNELL DOUGLAS COMPUTER SYSTEMS COMPANY,
Defendant, Appellee.
__________
ERRATA SHEET
Please make the following correction in the opinion in
above case released on March 2, 1993:

the

Page 5, line 10:

After the word "claims"
sentence, add the following language:

the

at the

end of

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).

March 2, 1993
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
____________________
No. 92-1690
NORTHEAST DATA SYSTEMS, INC.,
Plaintiff, Appellant,
v.
McDONNELL DOUGLAS COMPUTER SYSTEMS COMPANY,
Defendant, Appellee.
____________________

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Robert B. Collings, U.S. Magistrate Judge]
_____________________
____________________
Before
Breyer, Chief Judge,
___________
Cyr and Boudin, Circuit Judges.
______________
____________________

Roger S. Davis with whom Nancy Pitnof-Mahoney and Davis, Rubin

______________
_____________________
____________
Parker, P.A., were on brief for appellant.
____________
Frederick W. Rose with whom Gianfranco A. Pietrafesa, and You
_________________
________________________
___
Rose, Imbriaco & Burke, P.C. were on brief for appellee.
____________________________
____________________
March 2, 1993
____________________

-22

BREYER,
Data,

Chief Judge.
___________

a Massachusetts

In February 1976, Northeast

firm, entered

Microdata, a California company.

into a

contract with

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
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'
in

would

supply proper

spare parts;

relationship subsequently deteriorated.

January 1983,

Microdata,

failed to meet its contractual

claiming

And,

that Northeast

had

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

to

supply

personnel;

had broken its agreement (1) by failing

enough,
(2) by

supply parts; (3)

or

adequately

failing to
by failing

trained,

supply enough,
to pay

many 10%

servicing
or adequate,
commissions

when due;

(4) by marketing what

products under different names,

(5)

by charging

other dealers.
a

"deceit"

material
that

Northeast

claim that

Microdata
to

through other dealers;

higher prices

than it

and

charged

Northeast later amended its complaint to add

information

continue

were essentially "Reality"

had

during contract

was

sell

Microdata

selling
them,

Reality

to a

company

failed to

disclose

negotiations, namely
products,

and would

called

ADP, which

(according to Northeast) was both a "Reality" end user and a

competing

dealer.

omissions

broke both

contract,

amounted

statutes,

which,

"unfair

In Northeast's
explicit
to

and implicit

"fraud,"

with

the

trade practices"

view these

and

exception

statute,

actions and
terms of

violated

the

various

of

Massachusetts'

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

wrongfully

93A.
terminated

The
the

jury

found

that

distributorship;

Microdata
that

it

had
had

broken

explicit terms

commissions

on "end

in the

contract

user" sales

to ADP;

by failing

to pay

and that

it had

broken an implicit covenant of "good faith and fair dealing"

(either by

failing to

pay commissions

on other

sales, by

-44

failing to supply

proper parts

or service, or

awarded Northeast approximately $1.7

jury

also found

that

Microdata

both).

million damages.

had fraudulently

It
The

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.

agreed,

He

noted that

and

Microdata had

while the case was pending, to try the contract and

"fraud" claims under California

93A

Northeast

claims

so closely

law.

resembled

the

He reasoned

that the

contract and

fraud

claims that the parties must have agreed "implicitly" to try

those

claims under

California law as

that,

since California

has

no 93A-type

dismiss Northeast's 93A claims.

dismissal.

See
___

well.

28 U.S.C.

of

He concluded
law, he

must

Northeast now appeals that

1291, 636(c)(3) (appeal

from

order of a magistrate judge).

For

purposes

(without deciding)

of

this appeal,

that Northeast

we

have

assumed

is correct when

it says

that it neither explicitly nor implicitly agreed, during the

course of this litigation,
its 93A claims.

that California law would govern

Nonetheless, Northeast

did agree, in

the

contract itself, that

-55

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."
that

document

exception)
"breach

Our review of the facts alleged in

makes clear

Northeast's

that

93A

(as

claims

of contract" claims.

we

said,

amount

with

one

to embroidered

See Caton v. Leach., 896 F.2d

___ _____
______

939, 943 (5th Cir. 1990)

(breach of implied covenant claims

are

claims);

breach

of contract

Contracts
_________

176

comment

Northeast

simply

says

"willfully" broke
proper "field
goods when and
"sole

Restatement (Second) of
________________________

e (1981).
that

Microdata

the contract by (1)

service and support;" (2)

as promised; (3)

instances

terminating

the

contract.

Northeast says that

-66

four

instances

"knowingly"

or

failing "to provide"

failing to deliver

selling goods outside

distributorship" without paying

wrongfully

In

the

commissions; and (4)

In

three

other

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.

motivated threats (as far

actions that

Those

as the document reveals) threaten

Microdata might

legally have taken

been no contract, for they consist of claims

threatened

(1) to deny Northeast

"Reality"
(2) to

products
sell

Northeast's
ways) to

(such as
competing

exclusive

had there

that Microdata

the right to sell certain

product called

product

"Sequel");

(called

territory; and

stop Northeast

badly

from meeting

(3)

"CMC")

in

(in unspecified

its contract-imposed

buying quota.
Of
"willfully"

or

something to
Northeast

course, the

allegations that

"knowingly"

the pure breach

hopes

needed to bring

they
a claim

or

with

Microdata acted
bad

motive

of contract claims.

provide the

element

of breach of

add

Indeed,

of "rascality"

contract within

the

statute. Compare Pepsi-Cola Metropolitan Bottling Co., Inc.

_______ ___________________________________________
v. Checkers, Inc., 754
______________
breach of contract

F.2d 10, 18 (1st Cir.

1985) (simple

does not violate Chapter 93A)

with Wang
____ ____

Laboratories, Inc.
__________________

v. Business Incentives Inc., 501 N.E.2d

_________________________

1163 (Mass.

1986) (bad faith contract

Chapter 93A

claim) and Levings

___ _______

termination states a

v. Forbes & Wallace, Inc.,

_______________________

-77

396

N.E.2d 149

"rascality").

(Mass. 1979)
But, the

(93A violations

must involve

relevant question here

is whether

those additional "state of mind" or "bad motive" allegations

(together with

other, less significant bits

take these claims outside

that

says

California

obligations of

law

of embroidery)

the scope of contractual language

will

govern

the parties" in respect

"the

rights

and

to the "Agreement."

We find that they do not.

The contract violations
the

93A claims.

allegations

add

The "state
little.

of
Given

are essential elements of

mind" and
the

"bad

language

motive"
of

the

contract's choice-of-law provision (applying

California law

to "rights

or imposed by,

and obligations" arising out of,

the "Agreement"), would it not

Massachusetts
claims?

law,

not

seem surprising to find that

California

law,

governed

these

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

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

-88

claim."

See
___

Canal Electric Co. v.

___________________

Corp., 548 N.E.2d

_____
permitted

182, 187

plaintiffs

to

Westinghouse Electric
_____________________

(Mass. 1990).
obtain

separate

That court

has

Chapter

93A

attorneys'

fees in

plaintiffs "double
claim and a
Linthicum
_________

such circumstances,
recovery" on

93A claim
v.

both a breach

arising from the

Archambault,
___________

389

but it

N.E.2d

has denied
of contract

same breach.
482

See
___

(Mass. 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 the facts, a Chapter 93A

claim may

essentially

federal district

reduce to

court has

contract claim.

reached the same

One

conclusion we

reach with respect to a similar contract clause.

See Scheck
___ ______

v. Burger King Corp.,

__________________

(S.D. Fla.

1991) (clause

which

756 F.Supp.
says

franchise

543, 545-46
agreement

"shall

be

governed and construed under and in accordance with the laws

of

the State of

Florida" applies to

bar Massachusetts 93A

claims which incorporate contract claims and would not exist

without the agreement).
We have found one

district court case in Illinois

that reaches a different result.

Fleet Mgt. Servs., Inc. v.

_______________________

Archer-Daniels-Midland Co., Inc., 627 F.Supp. 550 (C.D. Ill.

________________________________
1986).

That

district court reasoned that

-99

any violation of
___

Chapter 93A is a "tort" and therefore no alleged Chapter 93A

violation

could

fall within

choice-of-law provision

the

scope

of a

contractual

that talks about "contracts."

Id.
__

at 561-62.

This reasoning, however, seems to exalt pleading

form

fact-related substance.

over

Such

reasoning would

undermine the parties' choice of law agreement by permitting

one

of

little

them, through

artful

pleading, to

bring

what is

more than a breach of contract claim, under law that

both parties have agreed would not apply.

The
district court

Illinois case

claim
for the

upon

Massachusetts

case, Computer Systems Engineering, Inc. v.

___________________________________

Qantel Corp., 571

____________
different from

relied

F.Supp. 1365 (D.Mass. 1983),

the present

one.

Qantel
______

a case very

concerned a

93A

that was not, in essence, a breach of contract claim,

___
plaintiff there did

not claim

that the

defendant

broke a contract, but rather that the defendant fraudulently

_____

induced the
_______
place.
on

plaintiff

See id.
___ __

to form
____

the contract

at 1367 (Chapter 93A claim

fraudulent inducement);

see also
___ ____

in the

partially based

id. at
___

1370 (because

tort-like

claims predominate

over contract-like

compound

93A

claim

agreement);

claim,

93A

cf. Popkin
___ ______

Co., 711 F.Supp. 1194,

___

is

first

outside

claims in
parties'

v. National Benefit Life Insurance

________________________________
1201-02 (S.D.N.Y. 1989) (Chapter 93A

-1010

tort claim alleging

party
outside

with whom

fraudulent misrepresentations to

plaintiff had

choice-of-law clause

plaintiff and defendant).

a different
in

third

contract falls

agency agreement

between

Insofar as Qantel contains dicta,

______

Qantel, 571 F.Supp. at 1371, that might be read to mean that

______
_____

every
_____

Chapter 93A claim must be viewed

matter

how
___

contract,

clearly it
those

dicta

resembles
do

not

as a tort claim, no
claim

of

express

breach

of

view

of

our

Massachusetts law.
We conclude that the
law provision,

parties, in their choice-of-

meant that California law

would govern both

ordinary and

"rascal-like" breach

believe that

the "rascal-like" claims before

that

provision.

policy,

In the

Massachusetts

contracts,

Morris
______

(Mass. 1982),

and,

of contract claims.

absence of a
honors

in this

conflict with public

433

diversity

Borden v. Paul Revere Life Ins. Co., 935

______
_________________________
Cir. 1991).
policy

here.

There is no
The

us fit within

choice-of-law provisions

v. Watsco, Inc.,
_____________

We

N.E.2d 886,

case, so

must

in
888
we.

F.2d 370, 375 (1st

conflict with Massachusetts public

"dispute is essentially

a private one,"

which, unlike, say, an antitrust dispute, has no third-party

effects.

Cf.
___

Canal Electric,
_______________

-1111

548

N.E.2d

at

187-88

(corporations may

waive protection

of

93A by

contractual

limitation of liability clause).

We turn now to
called

an

"exception."

allegations
says

the one further 93A claim

of fraud,

That special
not breach

that Microdata, when

claim

that we

rests

of contract.

upon

Northeast

negotiating the contract, failed

to disclose that it was currently selling Reality systems to

ADP,

firm

distributorship
selling

to

Northeast
"fraud"

that
area, and

ADP

falls

business

that

even after

says that
that

does

it

the

this course
within

in

intended

contract
of

Northeast's
to

was in

continue
effect.

conduct amounts

the scope

of

Chapter

to a
93A.

Because this claim concerns the validity of the formation of

_________
the contract, it cannot be
rights or
the

obligations arising

claim

provision.

falls

notes

stipulate
r[eference]

outside

under the contract.

choice-of-law

See Qantel, 571 F.Supp. at 1372.

___ ______

Nonetheless,

its brief,

the

Hence,

contract's

Microdata, in
which

categorized as one involving the

refers us

that Northeast
that

"none

of"

t[o] ADP can form

agreed,

to
in

the docket

sheet,

a settlement,

Microdata's
the basis of

"actions

to

w[ith]

liability."

district

court memorandum

consent

judgment, Northeast

confirms

that, as

"agreed that

part of

if the

the

Court of

-1212

Appeals should reverse

the judgment dismissing

plaintiff's

Chapter 93A claim (Count X of the Second Amended Complaint),

plaintiff will not

press as part of

that claim any

defendant's actions with respect to ADP."

of the

The appeal,

with

respect to this remaining ADP claim, therefore is moot.

Pontarelli
__________

v. Stone,
_____

978

F.2d 773,

775

(1st Cir.

See
___
1992)

(settlement of merits of underlying claims moots appeal).

Finally, we
document,

at one

Microdata violated
frivolous

and

note that

point alleges
Chapter 93A

meritless

defenses, without

Northeast, in its
in a single
by "filing

counterclaims

any attempt to introduce

82 page

sentence that
and prosecuting

and

affirmative

any evidence to

support

same

at

the

trial

of

this

action."

Because

Northeast does not separately press this claim on appeal, we

suspect that it has been abandoned.
simply point out
nothing

that a

But, if it has not, we

claim of "abuse

of process"

with

more does not state a violation of Chapter 93A. See

___

Quaker State Oil Refining v. Garrity Oil Co., 884 F.2d 1510,
_________________________
_______________
1514 (1st Cir. 1989)
claim

and cases cited therein

_______________________

which proves baseless

not in itself

(filing legal
an unfair trade

practice, except where claim brought with ulterior motive).

For

these

reasons,

the

dismissing the Chapter 93A claims is

-1313

Affirmed.
________

magistrate's

order

-1414