UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
Nos. 95-1146
95-1203
PAUL F. AHERN, D/B/A AHERN ASSOCIATES,
Plaintiff - Appellee,
v.
DONALD THOMAS SCHOLZ,
Defendant - Appellant.
Nos. 95-1147
95-1204
PAUL F. AHERN, D/B/A AHERN ASSOCIATES,
Plaintiff - Appellant,
v.
DONALD THOMAS SCHOLZ,
Defendant - Appellee.
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Edward F. Harrington, U.S. District Judge]
Before
Torruella, Chief Judge,
Bownes, Senior Circuit Judge,
and Stahl, Circuit Judge.
Donald S. Engel, with whom Mark D. Passin, Engel & Engel,
Lawrence G. Green, Susan E. Stenger and Perkins, Smith & Cohen
were on brief for Donald Thomas Scholz.
David C. Phillips, with whom David M. Given and Goldstein &
Phillips were on brief for Paul F. Ahern.
June 4, 1996
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TORRUELLA, Chief Judge. The parties in this breach of
TORRUELLA, Chief Judge.
contract case, a successful musician and his former manager,
dispute whether royalties from record albums have been accounted
for and paid to each other. The appeal is from a final judgment
by the district court after a jury trial, disposing of all claims
in respect to all parties.
BACKGROUND: A BAND OUT OF BOSTON
BACKGROUND: A BAND OUT OF BOSTON
In this case, the parties dispute many of the facts and
the inferences to be drawn from them. Thus we start with a
sketch of the basic facts, and address the individual issues in
more detail below. Appellant and cross-appellee Donald Thomas
Scholz ("Scholz") is a musician, composer, and record producer
who was, and is, a member of the musical group BOSTON ("BOSTON").
In late 1975, Scholz entered into three agreements with appellee
and cross-appellant Paul F. Ahern ("Ahern"), who was engaged in
the business of promoting and managing music groups, and his then
partner, Charles McKenzie ("McKenzie") (collectively, the "1975
Agreements"). First, Scholz made a recording agreement (the
"Recording Agreement") with Ahern and McKenzie d/b/a P.C.
Productions, to which Bradley Delp, the lead singer of BOSTON,
was also a party. Second was a management agreement (the
"Management Agreement"), also between Scholz and P.C.
Productions, under which Ahern and McKenzie were appointed
Scholz' exclusive personal managers worldwide. The third
agreement was a songwriter agreement made between Scholz and
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Ahern, under which Scholz was obligated to furnish Ahern his
exclusive songwriting services for a period of five years.
In early 1976, CBS Records ("CBS") and Ahern
Associates, a business name of Ahern and McKenzie, entered into a
recording agreement for the exclusive recording services of
BOSTON. The group's first album (the "first album") was released
in 1976, and sold approximately 11 million copies -- one of the
highest-selling debut albums ever. Its second album (the "second
album") was released in August 1978, and sold approximately 6
million copies.
In 1978, Scholz and the other members of BOSTON entered
into a modification agreement with Ahern and P.C. Productions,
dated April 24, 1978. Among other things, the First Modification
Agreement modified the 1975 Agreements and changed the financial
relationship between Scholz and his managers. Ahern and McKenzie
dissolved their partnership. A few years later, in May of 1981,
Ahern and Scholz, individually and under various business names,
entered into a further modification agreement (the "Further
Modification Agreement" or "FMA"), which is at the heart of this
dispute. Ahern ceased to be Scholz' manager.
In 1982, with the third album not yet released, CBS cut
off the payment of royalties generated from the first and second
albums. In 1983, CBS brought suit against Scholz, Ahern, and the
members of BOSTON for failure to timely deliver record albums.
Scholz' counsel in that action was Donald S. Engel ("Engel");
Ahern had his own counsel. While that litigation was pending,
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the third album was released by MCA Records ("MCA") in 1986 and
sold well over 4 million copies. At the close of trial -- seven
years after the CBS litigation began -- the jury found that
Scholz was not in breach of contract. Scholz incurred legal fees
of about $3.4 million dollars.
In February 1991, Ahern commenced this action against
Scholz for breach of the FMA claiming a failure to pay royalties
due under the third album. Scholz asserted various affirmative
defenses and counterclaims against Ahern, including breach of the
FMA. During trial, Engel, Scholz' lead trial counsel, was twice
called as a witness. At the close of the evidence, the court
granted Scholz' directed verdict dismissing Ahern's Count III for
fraud and IV for breach of implied covenant of good faith and
fair dealing. The court also granted Ahern's motion for directed
verdict dismissing Scholz' First, Second, and Third Counterclaims
and his, Third, Fourth, and Fifth affirmative defenses. Only the
parties' respective breach of contract claims went to the jury.
The jury found that Scholz breached section 5.2.1 of the FMA to
pay Ahern royalties from the third album, and found that Ahern
had not breached the FMA to account for and pay Scholz royalties
due from the first and second albums. It awarded Ahern $547,007
in damages.
The trial court sitting without a jury also found
Scholz had breached the FMA, and heard Ahern's Count II for
declaratory relief and Count V for violation of Mass. Gen. L. ch.
93A and Scholz' Fifth Counterclaim for recision of contract for
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failure to obtain a license. The court denied the declaratory
relief Ahern sought in Count I, and awarded him costs, interest
and attorney's fees pursuant to Count V for violation of Mass.
Gen. L. ch. 93A 2 & 11. The court denied the relief sought by
Scholz in his Fifth Counterclaim and held that he waived his
Counts VI and VII at oral argument. After a hearing on Ahern's
bill of costs and application for reasonable attorney's fees and
interest, the court awarded Ahern $265,000 in attorney's fees and
$135,000 in costs.
The district court denied, without a hearing, Scholz'
motion for a new trial, motion to amend the court's memorandum
and order and judgment entered thereon, motion to admit new
evidence, and motion to amend the court's memorandum and order
and the judgment entered thereon regarding Scholz' Sixth
Counterclaim. This appeal followed.
MOTION FOR A NEW TRIAL
MOTION FOR A NEW TRIAL
Appellant first argues that the district court erred in
denying his motion for a new trial, made pursuant to Fed. R. Civ.
P. 59(a). We therefore review the record below to determine
whether the evidence required that the district court grant the
motion for a new trial. See Vda. de P rez v. Hospital del
Maestro, 910 F.2d 1004, 1006 (1st Cir. 1990). In reviewing the
record of the 16-day trial, we note that both parties presented
extensive evidence. The jury heard testimony regarding a history
that spans two decades, involves at least seven contracts,
includes detailed numerical accounting, and references more than
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half a dozen other legal battles. The parties called a total of
fifteen witnesses, seven of whom, including Ahern, Scholz, and
Engel, Scholz' counsel, testified twice. In short, the jury
faced a complex and sometimes conflicting set of facts in making
its decision as to whether either, neither, or both parties
breached the 1981 Further Modification Agreement. Ultimately, we
find that the jury's verdict was not against the clear weight of
the evidence, and the district court did not abuse its discretion
in so finding.
A. Standard of Review
A. Standard of Review
"A verdict may be set aside and new trial ordered 'when
the verdict is against the clear weight of the evidence, or is
based upon evidence which is false, or will result in a clear
miscarriage of justice.'" Phav v. Trueblood, Inc., 915 F.2d 764,
766 (1st Cir. 1990) (quoting Torres-Troche v. Municipality of
Yauco, 873 F.2d 499 (1st Cir. 1989)); see Fed. R. Civ. P. 59(a);
S nchez v. Puerto Rico Oil Co., 37 F.3d 712, 717 (1st Cir. 1994).
In reaching its decision, "the district court has broad legal
authority to determine whether or not a jury's verdict is against
the 'clear weight of the evidence.'" Vda. de P rez, 910 F.2d at
1006. Nonetheless, "the trial judge's discretion, although
great, must be exercised with due regard to the rights of both
parties to have questions which are fairly open resolved finally
by the jury at a single trial." Coffran v. Hitchcock Clinic,
Inc., 683 F.2d 5, 6 (1st Cir.), cert. denied, 459 U.S. 1087
(1982); see Kearns v. Keystone Shipping Co., 863 F.2d 177, 178-79
-7-
(1st Cir. 1988). Thus, the district court judge "cannot displace
a jury's verdict merely because he disagrees with it or would
have found otherwise in a bench trial." Milone, 847 F.2d at 37;
see Coffran, 683 F.2d at 6. "The mere fact that a contrary
verdict may have been equally -- or even more easily --
supportable furnishes no cognizable ground for granting a new
trial." Freeman v. Package Mach. Co., 865 F.2d 1331, 1333-34
(1st Cir. 1988).
Our review is circumscribed: we will disturb the
district court's ruling on appellant's motion for a new trial
only where there has been a clear abuse of discretion. See Simon
v. Navon, 71 F.3d 9, 13 (1st Cir. 1995); Newell Puerto Rico, Ltd.
v. Rubbermaid Inc., 20 F.3d 15, 22 (1st Cir. 1994).
In order to determine whether such an
abuse occurred here, we must review the
record below. We do this not in the role
of "a thirteenth juror," assessing the
credibility of witnesses and weighing
testimony, but rather to isolate the
factual basis for the trial court's
ruling and provide the foundation for our
action today.
Kearns, 863 F.2d at 179. "So long as a reasonable basis exists
for the jury's verdict, we will not disturb the district court's
ruling on appeal." Newell Puerto Rico, Ltd., 20 F.3d at 22.
With our standard of review established, we turn to
Scholz' argument and the record below. We address each of the
two breach of contract claims the jury decided in turn.
B. Did Ahern Breach the FMA?
B. Did Ahern Breach the FMA?
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Scholz argues that Ahern breached his obligations under
the 1981 FMA to both account for and pay to Scholz, every six
months, his share of the royalties from the compositions on the
first and second albums: indeed, Ahern admitted at trial that he
had failed to make some payments he owed Scholz under the FMA.
The jury and the trial court disagreed with Scholz, however, and
found that Ahern's breach of the FMA was not material.1 The
question facing us, then, is whether the district court abused
its discretion in finding that the jury's decision was not
against the weight of the evidence. After careful review of the
record, we find no abuse of discretion in the lower court's
decision not to disturb the jury's finding.
Scholz argues at some length on appeal that Ahern's
breach was by definition material, both for his failure to
account and his failure to pay. As for the first contention, we
note that while Scholz' reading of the FMA as requiring that
Ahern render Scholz direct accountings every six months is a
convincing one, it is not the only plausible one. Indeed, Ahern
1 Regarding substantial performance, the court's instructions to
the jury stated that
The term "performance" contains within it
substantial performance. Namely, if a
person has substantially performed, that,
in the eyes of the law, is full
performance of one's obligations. So
when I've used the term "performance" or
"breach of the obligations," just include
within those concepts the question of
what is the definition of the term
"substantial performance" or "substantial
breach."
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contends that the FMA only required him to send irrevocable
letters of direction to various entities involved directing them
to send Scholz his share of the royalties when collected. In the
end, it would not be against the clear weight of the evidence to
find that letters of directions would satisfy Ahern's accounting
obligations under the FMA, and that such letters were sent.
Therefore, Ahern's failure to account every six months was not a
material breach.
As for the second contention, Scholz supports his
position that Ahern's failure to pay constitutes a separate,
material breach by drawing on both New York2 and Massachusetts
case law. He points to the Second Circuit's refusal to overturn
summary judgment in ARP Films, Inc. v. Marvel Entertainment
Group, Inc., 952 F.2d 643, 649 (2d Cir. 1991). In that case,
where plaintiffs failed to account and pay royalties in excess of
$400,000, the court stated that
the district court correctly
concluded that the breach by
plaintiffs in failing to make the
payments and provide the reports
required . . . was material as a
matter of law, thus authorizing
Marvel to terminate the contract.
[The parties' agreement] explicitly
2 The FMA provides that it shall be "governed by and construed
and enforced in accordance with the laws of the State of New York
applicable to agreements made and to be performed entirely in New
York." "In the absence of a conflict of public policy,
Massachusetts honors choice-of-law provisions in contracts, and,
in this diversity case, so must we." Northeast Data Sys., Inc.
v. McDonnell Douglass Computer Sys., Inc., 986 F.2d 607, 610 (1st
Cir. 1993) (citation omitted). As we find no public policy issue
is implicated by this private dispute, we respect the parties'
choice-of-law provision. See id.
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singled out plaintiffs' obligation
to provide "prompt accounting" for
distributions as a term and
condition of the agreement, the
substantial breach of which
authorized Marvel to terminate the
license provided by the agreement.
In addition, failure to tender
payment is generally deemed a
material breach of contract.
Finally, as the district court
found, and the subsequent
accounting confirmed, the amounts
withheld from Marvel by plaintiffs
were very substantial.
Id. (citations omitted). Scholz also points to a New York case
holding that a licensee's failure to pay franchise fees totalling
$40,129 over four months constituted a breach of contract,
McDonald's Corp. v. Robert Makin, Inc., 653 F. Supp. 401, 402-04
(W.D.N.Y. 1986), as well as Massachusetts language indicating
that "[a] material breach of an agreement occurs when there is a
breach of 'an essential and inducing feature of the contract.'"
Lease-it, Inc. v. Massachusetts Port Auth., 600 N.E.2d 599, 602
(Mass. App. Ct. 1992) (holding that six-month refusal to pay
concession and rental fees was a material breach) (quoting
Bulcholz v. Green Bros. Co., 172 N.E. 101 (Mass. 1930)). Scholz
argues that Ahern's breach, spanning thirteen years, is more
egregious than these cases of a six-month failure to pay
concession and rental fees, four-month failure to pay license and
lease fees, and seven-month failure to pay (and five-month
failure to account).3 Therefore, Scholz concludes, Ahern's
3 Scholz states that this is especially true here, where a
transfer of copyrights are involved, and notes Ahern's admission
that this imposed on him a heightened duty to account and pay
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failure to pay Scholz at least $459,000 is clearly a substantial
breach.
We are not convinced. We remind appellant that under
our standard of review, we do not sit as a juror, evaluating
credibility and weighing evidence, as he seems to ask us to do.
Rather, we simply weigh whether the district court committed a
clear abuse of its discretion in determining that the jury
verdict was not against the clear weight of the evidence. Newell
Puerto Rico, 20 F.3d at 22; Kearns, 863 F.2d at 179. Our review
of the record reveals that Ahern's counsel presented testimony
questioning, to varying degrees, nine of the thirteen items of
the estimate Scholz' accounting expert made of how much Ahern
owed Scholz. Phillip Ames ("Ames"), a certified public
accountant who served as business manager for both Ahern and
BOSTON from 1976 through sometime in 1981 or 1982, made several
estimates of how much Ahern owed Scholz, which he labelled "ball
park figures." While we note that Ames' final estimate was
$277,000, for a total of $459,000 with interest, we cannot assume
that the jury accepted this figure as gospel. Given that Ahern
sought over a million dollars in principal and interest from
Scholz, the jury may reasonably have found that the Ames figure
was not a substantial breach in the particular context of this
case. It may have determined that the amount of money Ahern
owed, taken in the perspective of the contract, Ahern's
obligations, and the total amounts of money concerned, was not so
royalties.
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significant a breach as to violate "an essential and inducing
feature of the contract." Lease-it, 600 N.E.2d at 602. Finally,
addressing the case law Scholz relies on for support, we note
that here, unlike in those cases, the amount of money owed was in
question.
Ultimately, examining the record in full, the evidence
clearly provides the jury and trial court with a basis for
finding that Ahern did not substantially breach the FMA. As this
Circuit stated on another occasion,
We can understand how a jury might
have decided for [defendant] on the
basis of this evidence. But the
jury did not do this; it decided
for [plaintiff]. We do not see how
one could say that the jury clearly
made a mistake. We do not see how
one could say that the evidence
overwhelmingly favored the
[defendant]. Rather, the evidence
simply was mixed and contradictory.
Vda. de P rez, 910 F.2d at 1008. Therefore we cannot say that
the district court committed a clear breach of its discretion on
this point.
C. Did Scholz Breach the FMA?
C. Did Scholz Breach the FMA?
Ahern claimed below that Scholz breached his obligation
under section 5.2.1 of the FMA to pay Ahern his share of the
royalties due from the third album.4 The evidence presented at
4 That provision provided, in pertinent part,
With respect to the future
commercial release of any albums
embodying the musical performance
of the group "Boston" . . . , Ahern
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trial centered on a document entitled "Artist Royalty Statement"
("the Scholz Statement"), which Scholz presented to Ahern.5
shall be entitled to receive
eighteen percent (18%) of gross
royalties after deduction and
payment of only (i) a producer's
royalty to Scholz (computed
according to the terms and
provisions of the agreement between
CBS and Ahern Associates, as
amended, at a basic rate of six
percent (6%) of the wholesale
royalty base price) and (ii) all
commercially reasonable recording
expenses, including Tom Scholz'
recording services (i.e.
commercially reasonable engineering
and other recording services), or
recording expenses incurred by CBS
or such other company and deducted
from royalties payable . . . .
Because McKenzie was entitled to a percentage of the royalties,
Ahern's actual rate was 12 percent.
5 In fact, Scholz sent Ahern two "Artist Royalty Statements,"
the first dated from inception to June 30, 1990, the second from
inception through December 31, 1993. We address the second here,
as being more recent. It listed the following figures:
Total Gross Royalties Reported by MCA Records $6,604,048.14
Gross Royalties - Audit Settlement 170,000.00
Less Producer Share (2,257,862.05)
Gross Artist Royalties 4,516,186.09
less MCA Costs Deducted 508.566.22
less MCA Costs - Audit Settlement (210,000.00)
less Artist Costs (Schedule 1) 4,360,447.00
Net Artist Royalties (142,827.13)
Of this final "Net Artist Royalties" figure, Ahern's percentage
share was 12 percent, so that his share of the royalties was
minus $17,139.26. "Artist Costs" included charges for 11,971
hours of studio time in Scholz' studio at $125 an hour;
engineering and equipment for the studio, at a total of $60 an
hour; and $1.7 million in legal fees to Engel's law firm for the
CBS litigation and negotiation of the agreement with MCA.
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That statement listed over $6 million in gross royalties reported
by MCA prior to December 31, 1993, but reduced that figure by
deducting, among other things, a producer share and artist costs,
so that the net artist royalties fell to below zero -- and Ahern
was not entitled to any money. Scholz argued at trial that he
did not breach the FMA, but the jury and the trial court
disagreed.
On appeal, Scholz contends that their finding is
against the weight of the evidence, because Ahern's prior
material breaches excused Scholz' performance under the Further
Modification Agreement. Scholz points out that paragraph 2 of
the FMA states that
Scholz wishes to guarantee that
Ahern shall receive at a minimum
certain amounts of monies in
connection with future recordings
embodying the performances of the
group "BOSTON" . . . . in exchange
for the agreement of Ahern as set
forth herein.
Scholz shapes his argument on appeal as follows: Since Ahern's
only agreement of substance was his agreement to account for and
pay royalties to Scholz for prior BOSTON albums, Ahern's breach
of his commitment excused Scholz' performance. Indeed, Scholz
notes, the parties' mutual commitments to account to and pay each
other are expressly stated to be in consideration of each other.
In such "bilateral contracts for an agreed exchange of
performances, even though the promises are in form absolute, the
law regards them as constructively conditioned in order to avoid
an unjust result." Industrial Mercantile Fac. Co. v. Daisy
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Sportswear, 288 N.Y.S.2d 209, 211 (N.Y. Civ. Ct. 1967), order
aff'd, 289 N.Y.S.2d 332 (N.Y. Sup. Ct. 1968); see Restatement
(Second) of Contracts, 237 cmt. a (1979). Moreover, Scholz
continues, the non-occurrence of a condition of a party's duty
excuses the non-breaching party's obligation to perform even
though that party does not know of its non-occurrence, id., 237
cmt. c, and the intention or scienter of a breaching party are
not considered in the elements of breach of contract. See Agron
v. The Trustees of Columbia Univ., 1993 WL 118495 (S.D.N.Y.,
April 12, 1993).
Considering this, Scholz points out that his first
royalty statement regarding the third album was rendered by MCA
on April 1, 1987. Thus the earliest he could have owed money to
Ahern under the FMA was August 15, 1987 -- and by that date, he
argues, Ahern had already failed to account to Scholz or pay him
royalties with respect to the first two albums for over five
years. Therefore, Scholz maintains he was excused, at least
until Ahern tendered payment, from rendering an accounting or
paying royalties to Ahern from the third album. At the very
least, Scholz argues, he could have withheld payment of the
$459,000 admittedly owed him as a set-off against any amount he
owed Ahern. See Record Club of America v. United Artists
Records, Inc., 80 B.R. 271, 276 (S.D.N.Y. 1987), vacated on other
grounds, 890 F.2d 1264 (1989).
In so arguing, Scholz does not contend that he did not
in fact breach the FMA: he simply maintains that Ahern did so
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first. Since Scholz does not revisit the merits of the evidence
presented at trial regarding his breach, we will not do so
here.6 However, since we have already found that the verdict
that Ahern did not substantially breach the FMA was not against
the clear weight of the evidence, Scholz' argument here must
fail. Clearly, it would be inconsistent with our acceptance of
the verdict that Ahern did not substantially breach the FMA to
find that Scholz' performance was excused by Ahern's material
breach. Accordingly, we affirm the district court's decision to
refuse the motion for a new trial on this issue.7
D. Sufficiency of the Evidence
D. Sufficiency of the Evidence
In a footnote, Scholz adds that he is appealing the
verdict not only in terms of the denial of his motion for a new
trial, as discussed above, but also that he appeals each of the
jury's findings -- i.e. that Scholz breached the FMA, that Ahern
did not breach the Agreement, and that Ahern was entitled to
damages -- on the grounds of insufficiency of the evidence.
6 We note, however, that our review of the record convinces us
that the verdict is not against the clear weight of the evidence,
and so the district court's ruling was not an abuse of its
discretion.
7 Scholz argues, in a footnote, that the jury's verdict violates
the premise that a party cannot recover more than he would have
obtained had no breach occurred. However, we need not address
his contention. Scholz provides no more than a couple of
citations to flesh out his position: he does not explain how the
jury verdict places Ahern in a better position than he would have
been if Scholz had not breached the FMA. It is by now axiomatic
that "issues adverted to in a perfunctory manner, unaccompanied
by some effort at developed argumentation, are deemed waived."
United States v. Zannino, 895 F.2d 1, 17 (1st Cir.), cert.
denied, 494 U.S. 1082 (1990).
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Scholz relies on Engine Specialties, Inc. v. Bombadier Ltd., 605
F.2d 1, 9 (1st Cir. 1979), cert. denied sub nom. Durham
Distribs., Inc. v. Bombadier Ltd., 449 U.S. 983 (1983), to claim
that our review of his alternative argument is limited to asking
whether there is sufficient support in the record for the jury's
finding.
Engine Specialties outlines the standard of review as
follows:
If we can reach but one conclusion
after reviewing the evidence and
all inferences drawn fairly
therefrom in the light most
favorable to the plaintiff (the
prevailing party) and if that
conclusion differs from the jury's,
only then can the finding be set
aside. Even if contrary evidence
was presented and conflicting
inferences could be drawn, it is
for the jury to draw the ultimate
conclusion, and such determination
will not be disturbed unless the
condition described above is met.
Id.; see Fleet Nat'l Bank v. Anchor Media Television, Inc., 45
F.3d 546, 552-53 (1st Cir. 1995) (outlining application of
standard). We note that, in fact, this is the standard of review
applicable to motions for judgment as a matter of law under
Federal Rule of Civil Procedure 50. While it is a circumscribed
review, it is nonetheless not as limited as our review of the
district court's disposition of the motion for new trial. See
S nchez, 37 F.3d at 716-17 (comparing the two standards of
review). We find nothing in the record to establish that
appellant Scholz made a motion for judgment as a matter of law,
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so that he would be entitled to this less deferential standard of
review. Rather, he argues sufficiency of the evidence in his
motion for a new trial. Our review of the record, therefore,
must be under the abuse of discretion standard outlined above.
See MacQuarrie v. Howard Johnson Co., 877 F.2d 126, 131 (1st Cir.
1989) (noting that the strict "abuse of discretion" standard "is
especially appropriate if the motion for a new trial is based on
a claim that the verdict is against the weight of the evidence");
Freeman, 865 F.2d at 1341-43 (evaluating the weight of the
evidence as part of a motion for a new trial, separately from its
review of the denial of the motion for judgment notwithstanding
the verdict).
Irrespective of which standard of review we apply,
however, Scholz' alternative argument fails. First, the evidence
was overwhelming that he breached the FMA by failing to pay Ahern
his share of the royalties from the third album; indeed, Scholz
does not attempt to argue otherwise. Second, although the issue
of the materiality of Ahern's breach is fairly close, as
discussed above, there was sufficient evidence in the record for
the jury to determine that Ahern did not materially breach the
Further Modification Agreement. Finally, having made these two
determinations, the award of damages was appropriate. Therefore,
given the scope of the evidence as described, we find that the
district court's denial of appellant's motion for a new trial was
amply supported and not an abuse of discretion.
E. The Length of the Jury Deliberations
E. The Length of the Jury Deliberations
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Scholz next contends that the jury failed to follow its
instructions.8 The district court instructed the jury that
damages could only be awarded if it found one party breached the
FMA and the other did not. If it found that both parties were in
breach, no damages could be awarded. In making his contention,
Scholz reiterates his argument that the evidence was
insufficient, emphasizing that Ahern admitted he did not perform
his obligations under the FMA, and maintaining that Ahern's
accountant admitted that he both failed to pay at least $459,000
to Scholz and mischaracterized an advance from a foreign sub-
publisher as a loan. Under the jury instructions, Scholz argues,
8 The jury was instructed, in pertinent part, that:
A party which has performed its
obligations under a contract is entitled
to have the other party do the same.
Conversely, a party which has not
performed its obligations under a
contract is not entitled to performance
from the other party. So once you
understand the terms of the contract, you
should determine whether any party has
failed to perform any of the terms of the
contract.
***
If your determination should be that
the defendant or defendant in
counterclaim breached the contract and
that the plaintiff or plaintiff in
counterclaim did not, at that point you
would consider the issue of damages.
***
If you find that both parties breached
their obligations under the Further
Modification Agreement, then no damages
should be accorded to either party under
the contract.
(Day 15, pages 90-92).
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these factors preclude the jury from finding that Scholz breached
the FMA, or at least from awarding Ahern any royalties. These
contentions have been dismissed in our discussion above.
However, Scholz raises a new factor: he argues that
the jury's verdict and the extremely short period of
deliberations -- one and a half hours9 following fifteen days of
testimony -- reveal that the jury ignored the court's
instructions and rendered an erroneous and inconsistent verdict.
He cites the fact that one of the jurors planned to go on a
cruise two days after the date of the verdict as proof that the
jury was in a hurry to finish its deliberations. The jury's
questions,10 Scholz adds, demonstrates that it was determined
to award Ahern $547,000 regardless of who was in breach. Between
9 For the purposes of this discussion, we accept Scholz'
calculation of the time the jury spent deliberating its verdict.
10 The jury's questions, and the court's answers, were as
follows:
Question No. 1, if neither breached,
are damages awarded?
[Answer:] No.
[Question No. 2:] Verdict sheet uses
the words, quote, "only if," unquote, in
question three. I assume this precludes
us from awarding damages or from awarding
damage, one, if both breach.
[Answer:] If both breach, no damages.
If neither breach, no damages.
[Question No. 3:] If one did, do we
only take account from one side?
[Answer:] As I said, you would only
consider the claim of the non-breaching
party, but your judgment on that claim
has to be based on all the evidence that
has been introduced.
(Day 15, page 104).
-21-
the insufficient evidence and the perfunctory deliberations,
Scholz concludes, the district court had an affirmative duty to
grant a new trial. He seeks support for his argument in Kearns
v. Keystone Shipping Co., 863 F.2d 177 (1988), where this Circuit
held that a brief jury deliberation -- one hour and eighteen
minutes, following a three-day trial -- coupled with a verdict
contrary to the great weight of the evidence created a situation
where the district court had an affirmative duty to set aside the
verdict. Id. at 182.
We remain unswayed. Scholz' reliance on Kearns is
misplaced. There, the court explicitly required that the brief
deliberation be paired with a verdict contrary to the weight of
the evidence, noting that "'[i]f the evidence is sufficient to
support the verdict, the length of time the jury deliberates is
immaterial.'" Kearns, 863 F.2d at 182 (quoting Marx v. Hartford
Accident and Indemnity Co., 321 F.2d 70, 71 (5th Cir. 1963)). We
have already determined that, here, there was evidence sufficient
to support the verdict. Therefore, Scholz is merely left with a
complaint that the jury should have deliberated longer. His
complaint is easily defeated, as "no rule requires a jury to
deliberate for any set length of time." United States v.
Pe agar cano-Soler, 911 F.2d 833, 846 n.15 (1st Cir. 1990); see
United States v. Brotherton, 427 F.2d 1286, 1289 (8th Cir. 1970).
Indeed, we have previously upheld a verdict on thirty-two counts
which was reached in four hours, following a trial that lasted
five weeks, incorporating more than fifty witnesses and hundreds
-22-
of exhibits. Pe agar cano-Soler, 911 F.2d at 846; see also
United States v. Anderson, 561 F.2d 1301, 1303 (9th Cir.)
(holding that jury's brief deliberation does not indicate it did
not give full and impartial consideration to the evidence), cert.
denied, 434 U.S. 943 (1977); Brotherton, 427 F.2d at 1289
(finding that jury deliberation of five to seven minutes did not
demonstrate that jury did not consider court's instructions
before reaching verdict).
We also refuse to read a determination to award Ahern a
set amount of money from the jury's questions, which simply
clarified where it could award damages, and whose evidence it
should consider. Cf. Clark v. Moran, 942 F.2d 24, 32 (1st Cir.
1991) (refusing to impute reasonable doubt of guilt or of
witnesses' credibility from fact that jury deliberation was
lengthy or from questions asked). Finally, we note that the
jury's task was relatively simple. Although it heard complex
testimony and was asked to weigh detailed evidence, the district
court had already dismissed as a matter of law all the claims
except for the respective contract claims, and the sums at issue
had been clearly defined in the evidence and closing arguments.
ENGEL'S TESTIMONY AT TRIAL
ENGEL'S TESTIMONY AT TRIAL
As noted above, Engel, Scholz' lead counsel, was called
by both parties as a witness. Maintaining that Ahern called
Engel as an expert witness, instead of a percipient witness,
Scholz now argues that the district court committed prejudicial
error by, first, permitting Ahern to do so, and second, by
-23-
refusing to allow follow-up questioning by Engel's co-counsel,
Passin.11
Our examination of each of Scholz' contentions follows
the same legal framework. In each analysis, two questions face
us: first, whether the district court erred in admitting or
refusing the testimony or motion; and second, whether that error
was harmful. See Doty v. Sewall, 908 F.2d 1053, 1057 (1st Cir.
1990). Only if we answer both questions in the positive will
Scholz' argument on appeal prevail.
A trial court's error in an evidentiary ruling only
rises to the level of harmful error if a party's substantial
right is affected. See 28 U.S.C. 2111; Fed. R. Evid. 103(a);
Lubanski v. Coleco Indus., Inc., 929 F.2d 42, 46 (1st Cir. 1991).
"In determining whether an error affected a party's substantial
right, '[t]he central question is whether this court can say with
fair assurance . . . that the judgment was not substantially
swayed by the error.'" Espeaignnette v. Gene Tierney Co., 43
F.3d 1, 9 (1st Cir. 1994) (quoting Lubanski, 929 F.2d at 46
(internal quotations omitted)). Factors we must consider in
determining whether substantial rights are implicated include
both the centrality of the evidence and the prejudicial effect of
11 Scholz also argues that, since Engel's testimony was "highly
prejudicial" to Scholz, its improper admission is grounds for a
new trial, citing Conway v. Chemical Leaman Tank Lines, Inc., 687
F.2d 108 (5th Cir. 1982) (upholding district court's grant of
motion for new trial on grounds of unfair surprise due to
testimony from surprise expert witness). Since we find that the
testimony was not in fact highly prejudicial to Scholz, this
sparsely drawn alternative argument fails.
-24-
its exclusion or inclusion. Lubanski, 929 F.2d at 46. We weigh
these factors in "'the context of the case as gleaned from the
record as a whole.'" Id. (quoting Vincent v. Louis Marx & Co.,
874 F.2d 36, 41 (1st Cir. 1989)). We have repeatedly noted that
"no substantial right of the party is affected where the evidence
omitted was cumulative as to other admitted evidence." Doty, 908
F.2d at 1057. Should a reviewing court be in "grave doubt" as to
the likely effect an error had on the verdict, the error must be
treated as if it had in fact affected the verdict. O'Neal v.
McAninch, -- U.S. --, 115 S. Ct. 992, 994 (1995) (noting that "by
'grave doubt' we mean that, in the judge's mind, the matter is so
evenly balanced as he feels himself in virtual equipoise as to
the harmlessness of the error.").
We note that under Federal Rule of Evidence 103(a), we
review the decision not only to determine whether a substantial
right of the party is affected, but also to see whether a timely
objection "appears of record, stating the specific ground of
objection, if the specific ground was not apparent from the
context." Fed. R. Evid. 103(2); see Bonilla v. Yamaha Motors
Corp., 955 F.2d 150, 153 (1st Cir. 1992). Here, Scholz' counsel
objected at the time of the challenged rulings. Therefore, this
element of our analysis is not at issue.
Having established the legal framework, we examine each
of Scholz' contentions in turn.
A. The Contested Testimony
A. The Contested Testimony
-25-
Phillips, Ahern's counsel, put Engel on the stand on
the seventh day of trial. The objected-to portion of his
questioning sought testimony regarding the Scholz Statement,
which purported to account to Ahern for the royalties from the
third album. In the Statement, Scholz deducted $1.7 million for
legal fees charged by Engel's law firm, which the Statement
listed as equivalent to half of the fees charged in relation to
the negotiation of the agreement with MCA and the CBS litigation.
The immediate issue at trial was whether this deduction was
permissible as a "commercially reasonable recording expense"
deductible from the royalties under section 5.2.1 of the FMA.
Because the record is determinative of this issue, we quote it at
length:
Q. Now, as far as legal fees as recording
costs are concerned, you've had some
experience over the years, have you not,
in reviewing the contracts of performing
artists and groups in the musical field;
is that right?
A. Yes.
Q. And could you give the Court and the
jury some estimate of the number of
contracts that you believe is an estimate
that you reviewed over the period of time
that you've been doing such matters in
the entertainment field?
A. Hundreds and hundreds and hundreds and
more.
Q. Okay.
Have you ever seen legal fees as a
recording cost in any of those hundreds
and hundreds of contracts?
MR. PASSIN: Your Honor, I object. He
hasn't been called as an expert witness.
THE COURT: Overruled.
Do you mean, are you saying that he
can't answer that question?
THE WITNESS: No, your Honor, I would
--
-26-
THE COURT: Overruled. If you can't
answer it, say you can't answer it.
THE WITNESS: I can answer it, but
it's a little awkward to call me as a
witness, as an expert in my client's
case.
THE COURT: Overruled. You were
advised that you were going to be called,
and you said that you wished to stay in
this case and your client was so advised.
The objection has been made. Overruled.
MR. ENGEL: At one point we said we
wished to be out of the case. I think it
should be clear. At one point we said
out.
THE COURT: Overruled.
BY MR. PHILLIPS:
Q. Do you have the question in mind, Mr.
Engel? In the hundreds and hundreds of
contracts that you've reviewed for
performing artists such as Mr. Scholz and
other groups in the music field, have you
ever seen legal fees as a recording cost
or expense?
A. I have never seen legal fees -- You
mean designated in a contract?
Q. Yes, as a recording cost or expense.
A. No, I have never seen legal fees
designated in a contract as anything, and
certainly not as recording costs.
(Day 7, pages 71-73).
Scholz claims the district court erred in admitting the
testimony over his counsel's objection, because Ahern's counsel
was using Engel as an expert witness against his own client.
First, he points out that Engel was not designated as an expert
under Federal Rule of Civil Procedure 26. See Prentiss &
Carlisle Co. v. Koehring-Waterous Div. of Timberjack, Inc., 972
F.2d 6 (1st Cir. 1992) (upholding trial court's refusal to hear
expert testimony from witness not designated as an expert).
Next, he maintains that under the applicable Rules of
Professional Conduct, Engel should not have been required to
-27-
testify against his client on an important and disputed point.
See Model Code of Professional Responsibility DR 5-102(B). In
turn, Ahern contends that the questions asked were not seeking
Engel's expert opinion under Federal Rule of Evidence 701,12
or, in the alternative, that the district court acted within its
discretion in admitting the testimony. See Espeaignnette, 43
F.3d at 10-11 ("Determinations of whether a witness is
sufficiently qualified to testify as an expert on a given subject
and whether such expert testimony would be helpful to the trier
of fact are committed to the sound discretion of the trial
court."); United States v. Sep lveda, 15 F.3d 1161, 1183 (1st
Cir. 1993) (stating that manifest error standard applies to trial
judge's rulings regarding expert testimony), cert. denied,
U.S. , 114 S. Ct. 2714 (1994). His final contention is that
Scholz' complaint should be deemed waived because Scholz first
12 We note in passing that we are skeptical both of Ahern's
claim that Engel was not called as an expert and of Scholz'
position that Engel was surprised at being questioned as an
expert, in light of the following discussion, held immediately
before Engel took the stand:
MR. ENGEL: ... The other thing is this
delicate situation. I'm an expert
witness, right?
MR. PHILLIPS: Yes.
MR. ENGEL: So I'm being called as an
expert?
THE COURT: Which you were on notice.
MR ENGEL: I understand.
(Day 7, pages 53-54). Despite Scholz' protestations in his brief
that the reference to Engel as an expert must be a misstatement
by Engel, an error by the court reporter, or based on something
outside the reporter's hearing, it seems apparent to us that both
parties foresaw the possibility of expert testimony being
elicited. Indeed, the court's statement above suggests that it
based its later ruling on the same premise.
-28-
injected Engel's opinion testimony into the case through his
affidavits.
We need not consider these arguments, however, for we
find that, even assuming the trial court erred in admitting the
challenged section of Engel's testimony, it was not harmful
error. Essentially, the challenged evidence was that in the
"hundreds and hundreds and hundreds and more" contracts that he
has reviewed, Engel never saw "legal fees designated in a
contract as anything, and certainly not as recording costs."
(Day 7, page 73). Having examined the record as a whole to
determine if admitting this evidence affected Scholz' substantial
rights, in accordance with our legal framework, we find that any
court error did not amount to harmful error.
First, although the issue of whether Scholz breached
the FMA was certainly a major focus of the case, and Engel's
testimony related to the single largest deduction taken from the
royalties on the Scholz Statement, we disagree with Scholz'
contention that it was probably determinative for the jury, for
several reasons. Ames and Stewart L. Levy ("Levy"), who has
served as Ahern's counsel in the past and who was designated an
expert on the subject of the reasonableness of the attorney's
fees, both testified that attorney's fees are not recording
expenses or recording costs. Ahern testified that they are not
artist costs or expenses for recording purposes. We found no
testimony, besides Engel's, contesting this point. Levy
challenged the fees' inclusion on the Scholz Statement on another
-29-
front as well, stating that Ahern was asked to pay for services
that at times were working against his best interests, including
time billed on motions to preclude a stipulation which would have
had Sony or CBS dropping Ahern from the lawsuit. In short, he
stated,
We start off with the proposition
that here is Mr. Ahern who is not
directing Mr. Scholz to jump
labels, not instructing Mr. Engel
to do anything. Because Mr. Scholz
decides to do what he is doing, not
only does Mr. Ahern get sued by
CBS, not only is Mr. Ahern's income
from CBS cut off, now Mr. Scholz
and his attorney, Mr. Engel, expect
Mr. Ahern not only to accept that
but to defray part of the cost of
Mr. Engel doing this. I find that
outrageous.
(Day 7, page 95). Engel testified that the attempt to keep Ahern
in the case was not directed solely at him, but was part of an
attempt to keep CBS from making deals with potential witnesses.
The fees were not disputed solely on the basis of the
appropriateness of their deduction. Levy testified at length
that the fees themselves were unreasonable. He testified that he
felt that Engel's firm
did the work without any regard to
any kind of budget, without any cap
on their work. Then they turned
around and said, he said we had
carte blanche. . . . Suddenly when
the case is over in 1990, we are
told it is $3 million. . . . There
were no parameters. Mr. Engel did
what he wanted to do. No one was
checking what he did to say it was
too expensive, don't do it.
-30-
(Day 7, pages 104-05). In turn, Engel testified that the fees
were higher than originally estimated because the head of CBS
personally pursued the litigation to the "bitter end," despite
repeated attempts to settle. Ultimately, he maintained, Scholz
prevailed and won moneys for the entire band -- and Ahern.
In fact, the attorney's fees were not the only
challenged deduction on the Scholz Statement. There was lengthy
testimony questioning and defending many of the other deductions,
most notably the producer's fee and the more than 11,000 hours of
studio time Scholz charged for. Therefore, even if the jury felt
the deduction of the attorney's fees -- or of some of them -- was
appropriate, they could still have reasonably found that Scholz
materially breached the FMA. Between the additional evidence, on
both sides, as to whether the legal fees could be commercially
reasonable recording expenses, whether the amount of fees charged
were reasonable, and whether other deductions on the Statement
were reasonable, we find that Engel's challenged testimony was
not central to the case.
Second, the evidence admitted did not have an unduly
prejudicial effect. When called to the stand by his co-counsel,
Engel was able to clarify that, while he felt he was asked about
"recording costs," the FMA actually addresses "recording
expenses":
Q. Does the -- The first question, does
the further modification use the term
"recording costs"?
A. My recollection is, the [F]irst
Modification Agreement uses the term
-31-
"recording expenses." I was asked about
recording costs.
***
Q. Do recording contracts use the term
"recording expenses" or "recording
costs"?
A. I, in all the recording contracts
I've seen, in many of them, I don't
remember the term "recording expenses"
ever used, it's always "recording costs"
that I've seen in the clause.
(Day 13, pages 110-112). He followed up on this in his closing
argument, stating that "[q]uestions were asked about recording
costs, but recording costs is not the word used [in the FMA]."
(Day 15, page 18). We find that this additional testimony by
Engel counters the potential prejudicial effect of his challenged
statement. Scholz argues on appeal that the prejudicial effect
of the testimony was compounded by the statement of Ahern's
counsel in his closing argument that
there is no testimony before you,
ladies and gentlemen, that legal
costs in litigation that Mr. Scholz
was in is a recording cost. In
fact, to the contrary, the only
testimony here has been that legal
costs -- legal fees and legal costs
are not recording costs.
You may recall Mr. Engel
uncomfortably on the witness stand,
after I qualified him on his
expertise in matters of this sort,
acknowledging that this was the
case.
(Day 15, page 45). However, between the totality of the evidence
at trial and the additional statements Engel himself made, both
as witness and as counsel, we do not feel that this reference to
Engel in the hour spent in closing argument by Ahern's counsel
-32-
could be found to sway the jury's decision, prompting harmful
error. See Espeaignnette, 43 F.3d at 9.
B. The Omitted Testimony
B. The Omitted Testimony
Scholz contends that the district court made a separate
harmful error in upholding the objections made by Ahern's trial
counsel when Engel's co-counsel called Engel to the stand on the
thirteenth day of trial and tried to have him address his earlier
testimony. After stating that the FMA used the term "recording
expenses," not "recording costs," and reading out the pertinent
section of the FMA, Engel's testimony continued as follows:
Q. Have you seen contracts using only
[the] words "recording costs" where
artists were paid for legal fees?
A. Yes.
Q. As an expert, how do you interpret
recording expenses as it's used in the
Further Modification Agreement?
MR. PHILLIPS: Objection.
THE COURT: Sustained.
THE WITNESS: Your Honor, I was asked
--
THE COURT: Sustained.
Q. Does the language in the Further
Modification Agreement --
THE COURT: He asked you a question,
did you ever see it before? Your answer
was no. Now you're saying -- I won't
allow any questions as to where you saw
it.
THE WITNESS: He asked me, your Honor,
I remember the exact question, because I
answered it, he asked me about
interpreting recording costs. Now, if he
can ask me to interpret --
MR PHILLIPS: Objection, your Honor.
THE COURT: Sustained, sustained.
Sustained.
THE WITNESS: Well --
BY MR. PASSIN:
Q. Does the -- Does the language of the
Further Modification Agreement affect
-33-
other deductions you mentioned in [the
Scholz Statements]?
MR. PHILLIPS: Objection. He's simply
interpreting the agreement.
THE COURT: I'm going to sustain it.
THE WITNESS: Your Honor, could we have
a side bar, because I think --
THE COURT: No. No.
Let's get going.
(Day 13, pages 112-14).
On appeal, Scholz argues that the court "apparently
believed that it would be too prejudicial to Ahern to permit
Engel to explain his apparently adverse expert testimony but that
it was not too prejudicial to Scholz to permit Engel to testify
adversely to Scholz in the first place, a horrendous conclusion."
(Appellant's Brief, page 34). We disagree. The first time Engel
testified, he was asked about "contracts of performing artists
and groups in the musical field." (Day 7, page 71). He stated
in the disputed testimony that he had "never seen legal fees
designated in a contract as anything, and certainly not as
recording costs." (Day 7, page 73 (emphasis added)). When next
called to the stand, Engel agreed that he had seen "contracts
using only [the] words 'recording costs' where artists were paid
for legal fees." (Day 13, page 112). The court's decision to
sustain the objection made by Ahern's counsel in the ensuing
dialogue was not a refusal to allow Engel to explain his evidence
on the basis of its prejudicial effect against Ahern: it was
evidently a reaction to the apparent inconsistency between these
statements.
-34-
Essentially, on appeal Scholz maintains that Engel's
co-counsel was not allowed to "cross-examine" him on the subject
of his direct testimony for Ahern, thereby precluding him from
presenting clarifying evidence or diminishing the "sting" of an
attorney testifying against his own client. This error
compounded the error of admitting Engel's expert testimony,
Scholz contends. He complains that because of the court's
ruling, the jury never got to hear Engel's testimony regarding
other types of contracts, such as agreements between performers
and managers, or the difference between "recording costs" and
"recording expenses." Nor did they hear his explanation that his
answer might differ if asked about "commercially reasonable
recording expenses," not "recording costs," he notes. We view
this final protest with some skepticism, however, in light of
Engel's testimony on the stand that he had never seen legal fees
designated "as anything," which would, presumably, include
commercially reasonable recording expenses.
Assuming, arguendo, that Engel would have made the
above testimony and that the district court erred in excluding
the line of questioning, any resulting error was harmless.
First, for the same reasons outlined above, the testimony, while
related to a central issue, was not central in and of itself.
Ames and Levy stated that they saw no difference between
"recording costs" and "recording expenses." Additional testimony
debated the total amount of fees charged as well as many other
aspects of the Scholz Statement. As for the potential
-35-
prejudicial effect, the testimony Engel was able to give, quoted
above, made it clear that his earlier statement was directed to
"recording costs," not "recording expenses," an argument he
reiterated in his closing, mitigating the potential effect of the
apparent inconsistency. Additionally, during his first day on
the stand Engel stated, in response to questioning about the
actual charging of recording costs or expenses by a group or a
performing artist, that although he reviews accountings after the
fact, he has never reviewed an accounting like that provided in
the Scholz Statement. He testified that "[t]his is a special
case. I don't remember any accounting that really falls into
this category. This is not a standard contract." (Day 7, page
81). While this testimony does not go directly to his prior
statements, it does emphasize that the FMA is not a standard
contract, implying that his and others' statements about other
contracts may not be pertinent. Weighing the above in the light
of the record as a whole, see Doty, 908 F.2d at 1057, we cannot
say that the court's evidentiary ruling excluded evidence that
was either central or prejudicial in its effect such that it
could have swayed the factfinders' decision. Thus, even if the
court erred, it did not rise to the level of harmful error. See
Lubanski, 929 F.2d at 46.
C. The Overall Impact of Engel's Testimony
C. The Overall Impact of Engel's Testimony
Of course, it is not just the impact of the information
elicited from Engel that we must evaluate under the harmless
error standard. We must also address the potential prejudicial
-36-
effect on the jury of seeing Engel, Scholz' counsel, take the
stand, dispute with the court and opposing counsel over his
testimony, and finally make a statement, apparently unwillingly,
against his client's interest -- a statement against which, he
argues, he had to take an apparently inconsistent position in his
closing argument. There is no doubt in our mind that this had
some prejudicial effect on the jury. Nonetheless, we cannot say
with "'fair assurance . . . that the judgment was []
substantially swayed by the error.'" Espeaignnette, 43 F.3d at 9
(quoting Lubanski, 929 F.2d at 46). The jury sat through fifteen
days of trial, received substantial and often cumulative
testimony on all points,13 and heard an hour of closing
argument from each party's counsel. We find it highly unlikely
that the verdict could have been the result of Engel's
questioning and the attendant commentary. Cf. United States v.
Rosales, 19 F.3d 763, 768 (1st Cir. 1994) (holding that
prosecutor's inappropriate argument in closing did not warrant
new trial under harmless error standard).
13 Indeed, the evidence was so redundant that the court was
prompted to exclaim that
in all my years, I have never seen
a case in which the same matters
have come up so many times. The
accumulation of evidence in this
case is really burdensome. . . .
I'm telling you, I've told you many
times, I don't know how much longer
I can take cumulative evidence.
(Day 13, pages 89-90).
-37-
There are significant reasons why trial counsel should
not be able to testify at trial, no matter for which party
counsel testifies.
The principal ethical
considerations to a lawyer
testifying on behalf of his client
regarding contested issues are that
the client's case will "be
presented through the testimony of
an obviously interested witness who
is subject to impeachment on that
account; and that the advocate is,
in effect, put in the unseemly
position of arguing his own
credibility."
Siguel v. Allstate Life Ins. Co., 141 F.R.D. 393, 396 (D. Mass.
1992) (quoting ABA Comm. on Ethics and Professional
Responsibility, Formal Op. 339 (1975)). "Combining the roles of
advocate and witness can prejudice the opposing party and can
involve a conflict of interest between lawyer and client." Model
Rules of Professional Conduct Rule 3.7 cmt. 1. When the attorney
is called to the stand by his client's opponent, the concerns are
just as substantial, if not more. See Siguel, 141 F.R.D. at 396
("Although there are degrees of adverse testimony, there are few,
if any, situations that justify acceptance or continued
employment in this circumstance."). Accordingly, Model Rule of
Professional Conduct 3.7 states that a lawyer shall not act as
advocate at a trial where he or she is likely to be a necessary
witness, except, among other things, where the testimony relates
to an uncontested issue or disqualification of the attorney would
work substantial hardship on the client. Finally, there is also
the danger that the performance of the dual roles of counsel and
-38-
witness will create confusion on the jury's part as to when the
attorney is speaking as a witness, "raising the possibility of
the trier according testimonial credit to the prosecutor's
closing argument," United States v. Johnston, 690 F.2d 638, 643
(7th Cir. 1982) -- or, conversely, weighing the testimony as if
it were argument.
All these concerns clearly come into play at a more
heightened level when trial counsel acts as an expert. However,
when counsel is asked to play that role for the length of one
question in a fifteen-day trial, even acknowledging the impact of
the attendant discussion with the court, attempts to examine him
on the testimony and references to it in the closing arguments,
we cannot hold that it rises to the level of harmful error
affecting a party's substantial right where the testimony is
cumulative and not a central part of the case. Any prejudice
that resulted from the objected-to portions of Engel's testimony
did not rise to the level of harmful error.
D. Denial of Pre-Trial Motion for Continuance
D. Denial of Pre-Trial Motion for Continuance
Prior to trial, Ahern filed two motions seeking to
disqualify Engel as Scholz' counsel on the grounds that Engel was
a percipient witness who ought to testify on Scholz' behalf.
Scholz opposed, and the district court refused, both motions.
When the parties presented their lists of witnesses, Engel
appeared on both parties' lists. Approximately six weeks before
trial was scheduled to begin, Ahern filed a third motion to
disqualify. This time Scholz agreed to withdraw his counsel
-39-
provided that he was given time to find new lead counsel. In his
memorandum in support of his motion, Scholz stated that he "now
[felt] he must retain new trial counsel in this matter, to avoid
the risk of a disqualification of his counsel just prior to the
trial, and for other reasons." (Scholz' Memorandum in Support of
His Motion to Continue Trial, page 3). The district court,
however, denied both Ahern's Renewed Motion to Disqualify and
Scholz' Motion to Continue Trial.
As discussed above, Scholz maintains in his brief on
appeal that the trial court erred by allowing Ahern to use Engel
as his own expert against Scholz. One of the four contentions he
uses to support this position is that
the trial court itself placed
Scholz in his precarious
predicament when it refused to
grant the last motion by Ahern to
disqualify Engel . . . . The
failure to grant the continuance
under these circumstances, which
resulted in severe prejudice to
Scholz, is, itself, reversible
error.
(Appellant's Brief, page 34). In support of his statement,
Scholz cites several cases weighing district court decisions on
motions for continuances. See Lowe v. City of East Chicago, 897
F.2d 272, 274-75 (7th Cir. 1990) (concluding that it was an abuse
of discretion to deny motion for continuance where plaintiff was
faced with choice between voluntary dismissal and going to trial
although his attorney was not ready for trial); United States v.
Flynt, 756 F.2d 1352, 1358-59 (9th Cir.) (finding that district
court abused its discretion in denying motion for continuance
-40-
where doing so effectively foreclosed defendant from presenting a
defense), amended, 764 F.2d 675 (9th Cir. 1985). We need not
prolong our discussion. Simply put, we do not feel the district
court abused its discretion in denying the motion for a
continuance. Even if it did, the error was harmless.
Finally, we note that while we ultimately hold that the
court did not commit harmful error in making its evidentiary
ruling, we find it very disturbing that trial counsel testified
in this case. In making his appeal, Scholz directs us to a
series of cases, several of which are referenced above, which lay
out the real and serious concerns implicated by allowing counsel
to testify at trial. See, e.g., United States v. Dack, 747 F.2d
1172, 1172 n.5 (7th Cir. 1984) ("Where evidence is easily
available from other sources and absent 'extraordinary
circumstances' or 'compelling reasons,' an attorney who
participates in the case should not be called as a witness.").
We ask whether Scholz and his counsel read these cases before
opposing Ahern's first two motions to disqualify. The concerns
the cases voice are implicated whether counsel testifies for his
or her own client or for the opposing party. What is more, even
if Engel testified solely as to ministerial matters, we still
doubt the wisdom of allowing him on the stand, as the matter of
his firm's legal fees -- not only whether, as a whole, they were
commercially reasonable recording expenses but also whether they
were reasonable at all -- was a matter of testimony. The jury
heard deposition testimony from Ahern's expert Levy that the
-41-
legal fees from the CBS litigation were, among other things,
"excessive and totally inappropriate" (Day 7, page 86); whether
Engel was called to the stand by Scholz or Ahern, indeed, even
had he never testified, his integrity and judgment could have
been questioned by the factfinders.
COUNTERCLAIM FOR FRAUD AND DECEIT AND AFFIRMATIVE DEFENSES
COUNTERCLAIM FOR FRAUD AND DECEIT AND AFFIRMATIVE DEFENSES
The Further Modification Agreement provided that Ahern
was entitled to a share of the royalties of any album completed
before October 24, 1984. Had the parties adhered to this
provision, Ahern would not be entitled to any moneys from the
third album, as it was completed after that date. Instead,
Scholz waived the deadline, conveying his waiver through
communications between the parties' attorneys in May of 1984. In
this action, Scholz drew on his waiver of the deadline in his
third counterclaim and several of his affirmative defenses to
argue for rescission of the waiver agreement on the grounds of
fraud and deceit and, alternatively, its invalidation. On appeal
before us, he appeals the district court's directed verdict
against him on these claims.
Our standard of review is a familiar one. A motion for
judgment as a matter of law "should be granted only when the
evidence, and the inferences to be drawn therefrom, viewed in the
light most favorable to the nonmovant . . . could lead reasonable
persons to but one conclusion." MacQuarrie, 877 F.2d at 128
(quoting Dopico-Fern ndez v. Grand Union Supermarket, 841 F.2d
11, 12 (1st Cir.), cert. denied, 488 U.S. 864 (1988)). We review
-42-
the district court's directed verdict de novo. See Fleet Nat'l
Bank, 45 F.3d at 552. Accordingly, "'we use the same stringent
decisional standards that control the district court.'"
Gallagher v. Wilton Enter., Inc., 962 F.2d 120, 125 (1st Cir.
1992) (quoting Hendricks & Assocs., Inc. v. Daewoo Corp., 923
F.2d 209, 215 (1st Cir. 1991)).
A. Rescission
A. Rescission
In his Third Affirmative Defense and Third
Counterclaim, Scholz sought recision of the waiver agreement on
the grounds that Ahern fraudulently induced him to enter into the
agreement by not disclosing that he had neither accounted for nor
paid, since at least 1981, the royalties he owed Scholz under the
FMA. Under New York law, applied here pursuant to the FMA choice
of law provision, a party seeking to prove common law fraud must
show that:
(1) the [cross-]defendant made a
material false representation, (2)
the [cross-] defendant intended to
defraud the [cross-] plaintiff
thereby, (3) the [cross-] plaintiff
reasonably relied upon the
representation, and (4) the [cross-
]plaintiff suffered damage as a
result of such reliance.
Banque Arabe et Internationale D'Investissement v. Maryland Nat'l
Bank, 57 F.3d 146, 153 (2d Cir. 1995) (analyzing elements in
context of claim for rescission based on fraud); see also Keywell
Corp. v. Weinstein, 33 F.3d 159, 163 (2d Cir. 1994). The first
element may be met by demonstrating not only a misrepresentation,
but also a concealment or nondisclosure of a material fact. See
-43-
Allen v. Westpoint-Pepperell, Inc., 945 F.2d 40, 44 (2d Cir.
1991); Bickhardt v. Ratner, 871 F. Supp. 613, 618 (S.D.N.Y.
1994). In addition, the party claiming fraudulent concealment
must demonstrate that the opposing party had a duty to disclose
the material information in question and demonstrate each element
of the claim by clear and convincing evidence. See Banque Arabe
et Internationale, 57 F.3d at 153. We begin our analysis by
weighing what duty Ahern owed Scholz, and then turn to the
elements listed above, ultimately concluding that the district
court erred in directing a verdict.
In the instant case, Scholz argues that Ahern owed
Scholz a duty to disclose because he was a fiduciary. See Brass
v. American Film Techs., 987 F.2d 142, 150 (2d Cir. 1993). Ahern
contests that at the time the waiver was given in May 1984, the
Management Agreement had terminated and so there was no fiduciary
duty and, thus, no duty to disclose. "Under New York law, a
fiduciary relationship includes 'both technical fiduciary
relations and those informal relations which exist whenever one
[person] trusts in, and relies upon, another.'" Allen, 945 F.2d
at 45 (quoting Penato v. George, 383 N.Y.S.2d 900, 904-05 (N.Y.
App. Div. 1976)); see Apple Records, Inc. v. Capitol Records,
Inc., 529 N.Y.S.2d 279, 283 (N.Y. App. Div. 1988) (noting that
fiduciary relationship can be found between close friends or
where confidence is based upon prior business dealings). "New
York courts typically focus on whether one person has reposed
trust or confidence in another who thereby gains a resulting
-44-
superiority or influence over the first." Litton Inds., Inc. v.
Lehman Bros. Kuhn Loeb Inc., 767 F. Supp. 1220, 1231 (S.D.N.Y.
1991), rev'd on other grounds, 967 F.2d 742 (2d Cir. 1992).
Scholz points us to the decision in Apple Records, Inc.
v. Capitol Records, Inc., where the court found that plaintiffs,
the New York corporation of the Beatles, stated a claim that a
fiduciary relationship existed.
The business dealings between
Capitol Records and the Beatles
date back to 1962, when the still
unacclaimed Beatles entrusted their
musical talents to defendant
Capitol records. It is alleged
that this relationship proved so
profitable to defendant that at one
point the Beatles constituted 25 to
30 percent of its business. Even
after the Beatles attained their
remarkable degree of popularity and
success, they still continued to
rely on Capitol Records for the
manufacture and distributing of
their recordings. It can be said
that from such a long enduring
relationship was borne a special
relationship of trust and
confidence, one which existed
independent of the contractual
duties, and one which plaintiffs
argue was betrayed by fraud . . . .
529 N.Y.S.2d at 283. Like the parties in Apple Records, at the
time of the waiver in 1984 Ahern and Scholz had a long history of
business dealings, marked by a series of agreements and
modification agreements. Also as in that case, the relationship
between the parties here was a profitable one for Ahern.
However, unlike that case, Ahern no longer, as of several years
previously, was Scholz' manager. Indeed, Scholz testified that
-45-
in 1978, when he first started the process that culminated in the
FMA, he was no longer on speaking terms with Ahern. While we do
not doubt -- and Ahern admitted at trial -- that Ahern had a
fiduciary duty to Scholz until 1981, the question remains whether
there was such a special relationship of trust and confidence
between the parties at the time of the waiver that a fiduciary
relationship, at least as regards Ahern's duty to pay Scholz'
share of the royalties from the first and second albums,
remained. Since a reasonable juror could find that it did,
however, a directed verdict is inappropriate on the question of
whether Ahern owed Scholz a fiduciary duty. Therefore, we
continue our analysis and turn to the evidence presented on the
elements listed above.
First, as for the material false misrepresentation or
nondisclosure, it is undisputed that Ahern did not disclose his
failure to pay, a fact which a reasonable juror could easily find
material. On the other hand, both Ahern and Barbara Sherry
("Sherry"), who provided business management services for Ahern
and BOSTON while Ames served as their business manager and served
as Ahern's business manager from 1982 up through the time of
trial, testified that they were not aware money was owed until
after the waiver was made, and Scholz points to no evidence of
concealment. Second, Scholz would have us read an intent to
deceive into Sherry's testimony agreeing with Engel's statement
that today, looking at a royalty statement from the company
charged with administrating the publishing, "it's immediately
-46-
plain to anyone who knows this business, that [the administration
company] was not paying" the proper percentage to Scholz. (Day
6, pages 61-62). Scholz cannot rely on this as an admission that
Sherry knew Scholz was not receiving all his moneys, however,
since her actual testimony was that she did not know of the
failure at the time. Instead, he seeks to build on her admission
that one could have known from the face of the royalty statements
that there was an error, as well as the fact that there was no
evidence that letters of direction were prepared for the foreign
sub-publishers, to support his contention that Ahern "had to have
known" he was not making all his payments. Ahern presented no
evidence indicating that he could not have known of the error,
just that he did not. In essence, therefore, determining whether
Ahern intended to deceive Scholz becomes an issue of credibility,
one which of necessity is a question for the jury.
As for whether Scholz reasonably relied on Ahern's
nondisclosure, his case is damaged by the fact that the evidence
is undisputed that Ahern did not actually solicit the waiver.
Scholz' attorney contacted his counsel and offered it to him.
Scholz explained his motivation at trial:
A. Well, I figured if I, if I finished
the record six months later and I missed
that date that Paul Ahern was entitled to
his 12 percent of the royalties, you
know, I missed that date and then six
months later delivered the record, I was
sure he would be upset about that and,
and want his 12 percent anyway, and I
didn't want to fight with him.
Q. And was it your intention at that
time --
A. I had enough trouble at that point.
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Q. And did you ask for anything in
return for that waiver?
A. No.
(Day 10, pages 38-39). However, Scholz points to his testimony
at trial that he "obviously" would not have agreed to the waiver
had he known of Ahern's failure to pay him publishing royalties
as evidence of his reliance. Giving Scholz the benefit of all
the inferences, a reasonable juror could find under these
circumstances that Ahern sought to induce Scholz into a
fraudulent agreement, once it had been offered to him, through
nondisclosure of his failure to pay. The presence of the fourth
element, damages, Scholz contends, is witnessed by the fact that
he now owes Ahern money: had he not waived the deadline, Ahern
would not have been entitled to royalties from the third album.
Given all of the above, we find that Scholz has mustered
sufficient evidence for the issue to go to the jury.
B. Invalidation of the Waiver
B. Invalidation of the Waiver
In his Fourth and Fifth Affirmative Defenses, Scholz
argues that the waiver should be invalidated because he did not
knowingly give his consent. He maintains here that in order to
prevail, all he must prove is that he would not have agreed to
the waiver if he had known of Ahern's failure to account to and
pay him royalties. Since he testified to that effect, he argues,
the district court erred in granting a directed verdict. We
disagree. First, we note that none of the cases Scholz looks to
for support discuss invalidation as an affirmative defense under
Federal Rule of Civil Procedure 8(c). Although the case law
-48-
indicates that there is precedent for such an affirmative
defense, see, e.g., Unites States v. Krieger, 773 F. Supp. 580,
583 (S.D.N.Y. 1991) (denying summary judgment on, inter alia,
claim for invalidity of guarantees despite failure to claim it as
an affirmative defense), we have found, and the parties present,
no comprehensive discussion of its nature. See 2A James Wm.
Moore et al., Moore's Federal Practice 8.27[4] n.6 (2d ed.
1995) (listing most common affirmative defenses, excluding
invalidity).
We find no other support for Scholz' position in the
cases he cites. Allen, which he looks to for the proposition
that all he has to prove is that he would not have agreed to the
waiver, does not address invalidity of a waiver or release.
Rather, it notes that a court may rescind a release "'where it
finds either mutual mistake or one party's unilateral mistake
coupled with some fraud . . . of the other party.'" Allen, 945
F.2d at 44 (quoting National Union Fire Ins. Co. v. Walton Ins.
Ltd., 696 F. Supp. 897, 902 (S.D.N.Y. 1988)). Scholz did not
plead mutual mistake, and his rescission claim based on fraud is
addressed above.
Scholz states that he does not have to show Ahern owed
him a fiduciary duty in order to state a claim for invalidation.
Indeed, the court in Allen notes that where one party has
superior knowledge not available to the other party, a duty to
disclose may arise, apparently exclusive of a fiduciary duty, id.
at 45, but Scholz does not point to any evidence that he could
-49-
not have discovered that Ahern had not been paying him. His
reliance on Gishen v. Dura Corp., 362 Mass. 177, 285 N.E.2d 117
(Mass. 1972), apparently for the proposition that "[a] party
cannot waive information with respect to an error in calculation
whose existence is unknown to him, particularly where his
ignorance is caused by the very lack of disclosure in question
and where the parties are not fully at arm's length," id. at 122,
is misplaced. First and most importantly, under the choice-of-
law provision of the FMA, the parties here are applying New York,
not Massachusetts, law. Second, the Gishen opinion addressed a
request for a jury instruction on waiver, which was denied
because the party had not previously presented the argument; it
does not involve an affirmative defense. Id. at 121. The quoted
language is dicta -- and seems to undercut Scholz' proposition
that a fiduciary relationship is not necessary.
Scholz' citation to Werking v. Amity Estates, Inc., 137
N.E.2d 321 (N.Y. 1956), also proves unfruitful. There, the court
defines a waiver as "'the intentional relinquishment of a known
right with both knowledge of its existence and an intention to
relinquish it.'" Id. at 327 (quoting Whitney on Contracts 273
(4th ed. 1946)). The court found the waiver in question, of
jurisdictional defects in a tax sale of plaintiff's farm, invalid
because plaintiff "had no knowledge of the right he is charged
with having knowingly and intentionally relinquished." Id.
Here, however, Scholz knew exactly what right he was
-50-
relinquishing: the right not to pay Ahern 12 percent of the
royalties from the third album.
MASSACHUSETTS LAW CLAIMS
MASSACHUSETTS LAW CLAIMS
We next turn to Ahern's claim against Scholz under
Massachusetts General Law Chapter 93A, sections 2 and 11
("Chapter 93A"). The district court found that Scholz' failure
to pay royalties as provided in the FMA violated Chapter 93A.
More specifically, it held that the Scholz Statement regarding
the royalties on the third album constituted an unfair and
deceptive business practice, and that it was a "deliberate and
blatant attempt to deprive Plaintiff Ahern of moneys rightfully
due and owing to him." (District Court Memorandum and Order,
page 3). The court awarded Ahern $547,000 as well as costs,
interest, and reasonable attorney's fees.
Scholz now contends that his actions do not rise to the
level of unfair or deceptive trade practices within the meaning
of Chapter 93A. Section 11 of Chapter 93A provides a cause of
action to
[a]ny person who engages in the
conduct of any trade or commerce
and who suffers any loss of money
or property, real or personal, as a
result of the use or employment of
another person who engages in any
trade or commerce of . . . an
unfair or deceptive act or practice
. . . .
Mass. Gen. L. ch. 93A, 11.14 We begin with our standard of
14 Section 2, which is also referred to in the current action,
establishes that "[u]nfair methods of competition and unfair or
deceptive acts or practices in the conduct of any trade or
-51-
review; once it is established, we address Scholz' attack on the
sufficiency of the district court's findings, and his contention
that his acts did not rise to the level of "rascality" courts
require of Chapter 93A violations. See Quaker State Oil Ref.
Corp. v. Garrity Oil Co., 884 F.2d 1510, 1513 (1st Cir. 1989).
Because we ultimately find that the district court erred as a
matter of law in finding that Scholz violated Chapter 93A, we
need not address the defenses Scholz raises to the application of
that Chapter.
A. Standard of Review
A. Standard of Review
We review the district court's findings of law de novo,
and only set aside its findings of fact if "clearly erroneous."
See Industrial Gen. Corp. v. Sequoia Pacific Sys. Corp., 44 F.3d
40, 43 (1st Cir. 1995); see, e.g., Pepsi-Cola Metro. Bottling Co.
v. Checkers, Inc., 754 F.2d 10, 17 (1st Cir. 1985). "A finding
of fact is '"clearly erroneous" when although there is evidence
to support it, the reviewing court on the entire evidence is left
with the definite and firm conviction that a mistake has been
committed.'" Industrial Gen., 44 F.3d at 43 (quoting Anderson v.
City of Bessemer City, 470 U.S. 564, 573 (1985) (citation
omitted)). "Although whether a particular set of acts, in their
factual setting, is unfair or deceptive is a question of fact,
the boundaries of what may qualify for consideration as a
[Chapter] 93A violation is a question of law." Schwanbeck v.
commerce" are unlawful. Mass. Gen. L. ch. 93A, 2.
-52-
Federal-Mogul Corp., 578 N.E.2d 789, 803 (Mass. 1991), rev'd on
other grounds, 592 N.E.2d 1289 (Mass. 1992).
B. The District Court's Findings
B. The District Court's Findings
The district court determined that Scholz had violated
sections 2 and 11 through his failure to pay Ahern royalties from
the third album, and made the following findings in its
Memorandum and Order. First, it found that Scholz agreed to pay
Ahern royalties after deduction of only a producer's royalty and
all commercially reasonable recording expenses. Second, the
court held that the Scholz Statement constituted an unfair and
deceptive business practice. More specifically, it found that
the deductions taken for legal fees, payment to Jeff Dorenfeld,
time spent in the studio, and the resulting recording costs were
all not commercially reasonable recording expenses. Rather, the
court stated, $500,000 in recording expenses would be
commercially reasonable. It next found that Scholz' Statement
was
a deliberate and blatant attempt to
deprive the Plaintiff Ahern of
monies rightfully due and owing to
him as royalties from the sales of
the third Boston album. Such
egregious conduct . . . is patently
an unfair and deceptive practice.
The submission of [the Scholz
Statement] as an accounting by
Scholz to Ahern is a shocking
display of arrogant disdain for
Ahern's contractual rights and was
rendered in obvious bad faith.
(District Court Memorandum and Order, page 3).
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Scholz challenges the sufficiency of these findings.
Federal Rule of Civil Procedure 52(a) mandates that courts "find
the facts specially and state separately [their] conclusions of
law thereon" when trying facts without a jury. See, e.g.,
Monta ez v. Bagg, 510 N.E.2d 298, 300 (Mass. App. Ct. 1987)
(noting that judge did not make detailed findings of fact
regarding Chapter 93A claims under Mass. R. Civ. P. 52(a)).
Scholz notes that the court did not state that the deductions
were actually deceptive, and reminds us that the Scholz Statement
set forth in some detail what each of the deductions were. Since
the court did not make more specific findings as to unfair or
deceptive practices, he maintains, we should reverse the Chapter
93A finding against him.15 See Schwanbeck, 578 N.E.2d at 803
(holding that district court finding of Chapter 93A violation
lacked foundation in the court's subsidiary findings).
However, we remind Scholz that under Rule 52(a) "the
judge need only make brief, definite pertinent findings and
conclusions on the contested matters." Makuc v. American Honda
Motor Co., 835 F.2d 389, 394 (1st Cir. 1987). Here, the district
court found that Scholz breached the FMA, that four of his
deductions were commercially unreasonable, while a figure of $0.5
million would be reasonable; and that the Scholz Statement was "a
15 We note that, contrary to Scholz' position, were we to find
that the district court did not lay out sufficient findings of
fact, we would likely remand so that the lower court could make
subsidiary findings of fact and enter a new judgment on the basis
of its findings. See, e.g., Sidney Binder, Inc. v. Jewelers Mut.
Ins. Co., 552 N.E.2d 568, 572 (Mass. App. Ct. 1990).
-54-
deliberate and blatant attempt to deprive" Ahern of moneys owed
him. It is a question of law whether this attempt to deprive
Ahern rises to the level of a violation of Chapter 93A, as the
lower court held, and we believe the decision includes enough of
a basis for the Chapter 93A finding to save the decision from
remand. The district court has provided us with more than mere
conclusions. See Sidney Binder, Inc., 552 N.E.2d at 572 (holding
that explanatory findings were necessary where court merely
recited the evidence without making findings and concluded that
"neither party ha[d] sustained its burden of proof" that Chapter
93A had been violated). We note, however, that our task would
have been much simpler in this and other issues had the district
court seen fit to explicate more of its decision-making on paper.
There is a gap between finding that deductions are commercially
unreasonable and finding that the Scholz Statement as a whole is
an attempt to deprive Ahern deserving of the modifiers "unfair"
and "deceptive": while we are willing to follow the lower court
across the distance between them, a bridge would have been more
than welcome.
C. Scholz' Challenge to the Chapter 93A Findings
C. Scholz' Challenge to the Chapter 93A Findings
Having set forth our standard of review and the
findings of the district court, we turn to the heart of Scholz'
challenge to the Chapter 93A award. As noted above, whether an
act was unfair and/or deceptive is a question of fact. Based on
our review of the evidence, we do not hesitate to find that the
district court's findings of fact are not clearly erroneous, and
-55-
we will not disturb them.16 See United Truck Leasing Co. v.
Geltman, 533 N.E.2d 647, 653 (Mass. App. Ct. 1989), aff'd, 551
N.E.2d 20 (Mass. 1990). Thus, we assess the lower court's award
under Chapter 93A in the light of its finding that four
deductions -- which totalled $4.2 million -- were not reasonable,
but $0.5 million would be commercially reasonable recording
costs, and that the Scholz Statement was a deliberate attempt to
deprive Ahern of his percentage of the royalties from the third
album. We ask now whether these facts rise to the level of a
violation of Chapter 93A, section 11.
There is no clear definition of what conduct
constitutes an "unfair or deceptive" act. Mass. Gen. L. ch. 93A,
11. The Massachusetts courts "have noted, however, that '[t]he
statute "does not contemplate an overly precise standard of
ethical or moral behavior. It is the standard of the commercial
marketplace."'" Shepard's Pharmacy, Inc. v. Stop & Shop Cos.,
640 N.E.2d 1112, 1115 (Mass. App. Ct. 1994) (quoting USM Corp. v.
Arthur D. Little Sys., Inc., 546 N.E.2d 888 (Mass. App. Ct.
1989)), review granted, 644 N.E.2d 226 (1994). In the extensive
case law on Chapter 93A, "a common refrain has developed. 'The
objectionable conduct must attain a level of rascality that would
raise an eyebrow of someone inured to the rough and tumble of the
world of commerce.'" Quaker State, 884 F.2d at 1513 (quoting
16 Scholz argues at length in his breach that the facts do not
support a finding that his acts were unfair or deceptive. We
decline, however, to enter into the record yet again to point to
testimony and evidence refuting his contentions.
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Levings v. Forbes & Wallace Inc., 396 N.E.2d 149, 153 (Mass. App.
Ct. 1979)). In short,
a chapter 93A claimant must show
that the defendant's actions fell
"within at least the penumbra of
some common-law, statutory, or
other established concept of
unfairness," or were "immoral,
unethical, oppressive or
unscrupulous," and resulted in
"substantial injury . . . to
competitors or other businessmen."
Id. (quoting PMP Assocs., Inc. v. Globe Newspaper Co., 321 N.E.2d
915, 917 (Mass. 1975)). In evaluating whether an act or practice
is unfair, we assess "the equities between the parties,"
including what both parties knew or should have known. Swanson
v. Bankers Life Co., 450 N.E.2d 577, 580 (Mass. 1983).
It is well established that breach of a contract can
lead to a violation of Chapter 93A. See, e.g., Anthony's Pier
Four, Inc. v. HBC Assocs., 583 N.E.2d 806, 821 (Mass. 1991). The
simple fact that a party knowingly breached a contract does not
raise the breach to the level of a Chapter 93A violation,
however. Cf. Pepsi-Cola Metro. Bottling Co., 754 F.2d at 18
(stating that "mere breaches of contract, without more, do not
violate [C]hapter 93A."). In the breach of contract context, the
Massachusetts Supreme Judicial Court has "said that conduct 'in
disregard of known contractual arrangements' and intended to
secure benefits for the breaching party constitutes an unfair act
or practice for [Chapter] 93A purposes." Anthony's Pier Four,
583 N.E.2d at 821; see Wang Labs., Inc. v. Business Incentives,
Inc., 501 N.E.2d 1163, 1165 (Mass. 1986). Relying on the Appeals
-57-
Court of Massachusetts' decision in Atkinson v. Rosenthal, 598
N.E.2d 666 (Mass. App. Ct. 1992), Scholz seeks to limit this
test. There, the court examined a series of breach of contract
cases and concluded that
[t]here is in those cases a
constant pattern of the use of a
breach of contract as a lever to
obtain advantage for the party
committing the breach in relation
to the other party; i.e., the
breach of contract has an
extortionate quality that gives it
the rancid flavor of unfairness.
In the absence of conduct having
that quality, a failure to perform
obligations under a written lease,
even though deliberate and for
reasons of self-interest, does not
present an occasion for invocation
of [Chapter] 93A remedies.
Id. at 670-71 (citation omitted). We have not addressed, and
find no Massachusetts case law addressing, whether this language
from Atkinson extends beyond its immediate context to limit award
of Chapter 93A damages in breach of contract cases to cases with
an "extortionate quality." See NASCO, Inc. v. Public Storage,
Inc., 29 F.3d 28, 33 (1st Cir. 1994) (quoting Atkinson and
accepting, arguendo, that "in a breach of contract situation,
liability does not attach under [Chapter] 93A, section 11 unless
a defendant knowingly breached a contact in order to secure
additional benefits to itself to the detriment of a plaintiff.").
We need not do so today, however. First, if we accept
the test for Chapter 93A violation Scholz claims Atkinson frames,
the district court's award here will not stand because there has
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not been an extortionate element to the breach: Scholz tried to
hold on to Ahern's money, but he was not using the breach "to
force [Ahern] to do what otherwise [he] would not be legally
required to do."17 Pepsi-Cola Metro. Bottling Co., 754 F.2d at
18 (affirming Chapter 93A award where defendant withheld payment
as a "wedge" to force plaintiff to supply more products); see,
e.g., Anthony's Pier Four, 583 N.E.2d at 822 (holding that
withholding approval as a pretext to force party into changing
price of underlying contract violated Chapter 93A).
Second, if we were to find that Atkinson does not limit
Chapter 93A liability to cases with an extortionate element, but
rather address Scholz' acts under the test as stated in Anthony's
Pier Four, we still find that Chapter 93A has not been violated.
That test asks whether there has been conduct "'in disregard of
known contractual arrangements' and intended to secure benefits
for the breaching party." Anthony's Pier Four, 583 N.E.2d at
821; see Wang Labs., 501 N.E.2d at 1165 (finding liability under
Chapter 93A where interference with contract "constituted a
17 Ahern tries to argue that not only the Scholz Statement, but
also Scholz' defense of this case, in which he raised numerous
defenses and counterclaims, fulfill the requirement of finding a
"wedge" used by Scholz to force Ahern to abandon his share of the
royalties from the third album. However, the district court's
findings do not discuss Scholz' conduct in defending this
lawsuit, either by reference or as a basis for its conclusions.
We refuse to move as far afield from the district court's
findings in order to find extortionate conduct as Ahern requests.
His reliance on the court's discussion of the defendant's
litigation practices in Quaker State is misplaced, because there
the defendant's prosecution of the counterclaims was raised in
the complaint, and was addressed by the district court below.
884 F.2d at 1513-14.
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willful act calculated to obtain the benefits of [the] contract .
. . without cost and in disregard of known contractual
arrangements"). Here, the court found that Scholz knowingly
breached the contract in order to gain a benefit -- Ahern's share
of the royalties. But that would be true of any knowing breach
of a contract. The question, then, is whether the level of
"rascality" is sufficient to rise to the level of a violation of
Chapter 93A. We find it is not. First, while the deductions
that the court deemed commercially unreasonable ate up more than
half of the royalties reported, we note that Scholz did not seek
to conceal the nature of the deductions: he laid them out on the
Scholz Statement in varying levels of detail. Next, while Scholz
has an extensive degree of control over the moneys from the third
album, there has been no allegation that he did not report all of
the royalties from MCA on the Scholz Statement. Evidence was
presented that the number of hours spent on the album was
reconstructed after the fact, but the district court did not find
that the figures given were inaccurate, just that they were not
deductible. Scholz' breach amounted to more than a dispute over
the commercial reasonableness of certain deductions, as he would
have us believe. Nonetheless, his acts did not rise to the level
of rascality required for Chapter 93A liability.18 Ultimately,
18 Both parties devote sections of their briefs to six "factors"
related to Scholz' "rascality" which Scholz raises, and Ahern
disputes. We note that, for the most part, they prove irrelevant
because we focus here on Scholz' actions in breaching the FMA,
not the nature of the relationship between the parties for the
last twenty years.
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therefore, we conclude that the district court erred as a matter
of law in finding Scholz violated Chapter 93A, and reverse that
holding.
PREJUDGMENT INTEREST AND ATTORNEY'S FEES
PREJUDGMENT INTEREST AND ATTORNEY'S FEES
As we have found that Scholz did not violate Chapter
93A, we need not address the parties' arguments regarding the
award of attorney's fees under that statute. Nor do we weigh
Ahern's cross-appeal of the district court's refusal to award
prejudgment interest, since that is based on his Chapter 93A
contention. See Mass. Gen. L. ch. 231 6C ("interest shall be
added . . . to the amount of damages, at the contract rate, if
established, or at the rate of twelve percent per annum from the
date of the breach or demand."). It does not apply to his breach
of contract claim, as that was brought under New York law. See
Aubin v. Fudala, 782 F.2d 287, 289 (1st Cir. 1986) (noting that
"[w]hen a Plaintiff secures a jury verdict based on state law,
the law of that state governs the award of prejudgment
interest.").
No costs on appeal to either party.
CONCLUSION
CONCLUSION
For the reasons stated above, we reverse the lower
court's decision regarding Chapter 93A violations, affirm its
other holdings except on rescission, and remand for trial on the
issue of rescission.
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