United States Court of Appeals
For the First Circuit
No. 01-1568
JOHN H. MARTIN, JR.,
Plaintiff, Appellant,
v.
APPLIED CELLULAR TECHNOLOGY, INC.,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE
[Hon. Joseph A. DiClerico, Jr., U.S. District Judge]
Before
Boudin, Chief Judge,
Lipez, Circuit Judge, and
Bownes, Senior Circuit Judge.
Richard A. Mitchell, with whom Francis L. Cramer and Sullivan
& Gregg, P.A., were on brief, for appellant.
Alexander J. Walker, Jr., with whom Devine, Millimet & Branch,
P.A., was on brief, for appellee.
March 19, 2002
BOWNES, Senior Circuit Judge. Plaintiff-appellant John
H. Martin, Jr. was employed by a company owned and controlled by
defendant-appellee Applied Cellular Technology, Inc. ("ACT"). He
brought this diversity action in the District Court for the
District of New Hampshire to recover damages allegedly arising out
of a criminal prosecution and a civil action that ACT commenced
against him. The district court dismissed all of Martin’s claims.
We affirm.
I. BACKGROUND
A. Facts
In 1996 and 1997, Martin was vice president and chief
operating officer of Tech Tools, Inc., a wholly owned subsidiary of
ACT. Tech Tools was engaged in the marketing and sale of computer
software and was subject to ACT’s operational control.
Martin alleged that while employed at Tech Tools, he was
asked to develop and market a wine bottle stopper called "Spirit
Saver." Richard Sullivan and Angela Sullivan, directors of ACT,
offered Martin ten percent of the profits from Spirit Saver in
return for his efforts. Martin performed the work requested over
a period of approximately eighteen months. Spirit Saver has sold
over 100,000 units.
In early 1997, Martin began to negotiate with ACT for the
purchase of Tech Tools. In March, 1997, Martin formed Impact
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Technology Inc. as a vehicle by which to acquire Tech Tools. A
draft sale agreement was prepared but not executed.
On May 27, 1997, ACT broke off negotiations with Martin
for the purchase of Tech Tools and terminated Martin’s employment
after Tech Tools’s bookkeeper, Karen Clement, alerted ACT’s
management to several recent expenses that had been authorized by
Martin. Two days later, ACT contacted the Nashua Police Department
and reported that Martin had stolen funds from Tech Tools.
ACT’s president, Garrett Sullivan, met with Nashua Police
Detective Richard Widener and reported that Martin had given
himself an unauthorized raise in salary in excess of $1,000.00.
Sullivan also stated that invoices showed that a customer, the
American Red Cross, had paid Impact Technology for software
training on a Tech Tools product when the payment should have gone
to Tech Tools. Additionally, invoices showed that Martin had
transferred Tech Tools funds to a company called Execute
Technologies for the purchase and installation of computer
equipment. Some of the invoiced equipment could not be accounted
for within Tech Tools, and the equipment that was located had been
installed by Martin. Moreover, two checks made payable to
Calligraphy Creations for bulk mailing services appeared to be
overcharges. Calligraphy Creations was owned by Karen Martin,
Martin’s ex-wife.
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Sullivan provided the police with returned checks and
invoices related to these accusations, and stated that he wished to
initiate a criminal prosecution against Martin. Both ACT and the
Nashua Police Department investigated the questioned expenses.
On June 5, 1997, Detective Widener interviewed Karen
Clement, the bookkeeper who initially noticed the questioned
expenses. Clement provided Widener with Tech Tools’s payroll
records, which she claimed showed an unauthorized pay raise to
Martin amounting to $1,076.92. She also provided documents showing
that the American Red Cross paid Impact Technology $2,800.00 for
technical training related to software it had purchased from Tech
Tools. Clement told Widener that any payment for training should
have been deposited in Tech Tools’s account. Widener confirmed
that Martin had endorsed and deposited the check in Impact
Technology’s bank account, and that Impact Technology’s account
listed the same address as Tech Tools’s account.
Widener investigated Execute Technologies, the company
that received checks signed by Martin on Tech Tools’s account for
computer equipment and installation. Widener learned that Execute
Technologies had been co-founded by Martin, and suspected that
Martin had created the invoice for the work.
Widener also investigated two payments authorized by
Martin to Calligraphy Creations, the company owned by Martin’s
ex-wife, Karen Martin. ACT had reported that the amounts seemed
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high in comparison to previous payments for similar bulk mailing
services. Widener found that each of the two invoices from
Calligraphy Creations billed for 50,000 mailers when other records
indicated that only 35,000 were sent on each occasion.
Furthermore, one of the invoices appeared to bill Tech Tools for
layout and design of a mailer that Tech Tools had already created.
Widener attempted to interview Karen Martin but was unable to do
so. According to Widener, in September of 1997, Karen Martin was
subpoenaed to appear before a Hillsborough County Grand Jury to
testify concerning her former husband, Impact Technology, and
Execute Technologies. She invoked her Fifth Amendment privilege
not to testify before the Grand Jury.
B. Procedural history
In February of 1998, Tech Tools commenced a civil action
for conversion against Martin in state court. On April 14, 1998,
ACT’s private investigator submitted a four-page report to Widener;
an arrest warrant issued the same day. Soon thereafter, Martin was
arrested pursuant to the warrant and charged with theft by
unauthorized taking. The civil action was terminated by a
voluntary nonsuit in July of 1998, and in March of 1999, a nolle
prosequi was entered in the criminal case.
On May 14, 1999, Martin filed a complaint against ACT in
the District Court for the District of New Hampshire. The
complaint set forth claims for wrongful civil action (Count I),
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malicious prosecution (Count II), intentional infliction of
emotional distress (Count III), and negligent infliction of
emotional distress (Count IV). In May, 2000, Martin filed an
amended complaint adding a breach of contract claim (Count V) and
a statutory wage claim (Count VI).
On July 19, 1999, ACT filed a motion to dismiss Counts I
and II on the grounds that Martin failed to allege an adequate
factual predicate as to malice or improper purpose and could not
establish that the underlying civil action terminated in his favor.
ACT also moved to dismiss Counts III and IV on the ground that
Martin’s claims for emotional distress were barred by New
Hampshire’s Workers’ Compensation Act, N.H. Rev. Stat. Ann. § 281-
A:8,I (Supp. 1998).
On September 22, 1999, the district court denied ACT’s
motion to dismiss as to Counts I and II, but allowed the motion as
to Counts III and IV. ACT then answered Martin’s complaint and
asserted counterclaims against him for conversion and breach of
fiduciary duty.
On December 4, 2000, ACT moved for summary judgment with
respect to the remaining counts. As to Counts I and II, ACT
asserted that Martin could not prove the absence of probable cause
for his prosecution; as to Counts V and VI, it asserted that both
claims were barred by New Hampshire’s Statute of Frauds, N.H. Rev.
Stat. Ann. § 506:2 (Supp. 1998). On March 21, 2001, the district
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court allowed ACT’s motion for summary judgment as to all four
remaining counts. ACT’s counterclaims were voluntarily dismissed
without prejudice.
Martin now appeals from the district court’s dismissal of
Counts III and IV and grant of summary judgment as to Counts I, II,
V and VI.
II. DISCUSSION
A. Emotional distress
We first consider Counts III and IV, which were dismissed
for failure to state a claim. This Court applies a de novo
standard of review to a district court’s allowance of a motion to
dismiss. TAG/ICIB Services, Inc. v. Pan American Grain Co., 215
F.3d 172, 175 (1st Cir. 2000). We accept as true the well-pleaded
factual allegations of the complaint, draw all reasonable
inferences therefrom in the plaintiff’s favor and determine whether
the complaint, so read, sets forth facts sufficient to justify
recovery on any cognizable theory. Id.
Counts III and IV are claims for intentional and
negligent infliction of emotional distress. To be compensable
under New Hampshire’s worker’s compensation law, an injury must
have "aris[en] out of and in the course of employment." N.H. Rev.
Stat. Ann. § 281-A:2, XI. To fulfill this requirement, the
employee must prove:
(1) that the injury arose out of employment by
demonstrating that it resulted from a risk
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created by the employment; and (2) that the
injury arose in the course of employment by
demonstrating that (A) it occurred within the
boundaries of time and space created by the
terms of employment; and (B) it occurred in
the performance of an activity . . . if
reasonably expected and not forbidden, or an
activity of mutual benefit to employer and
employee.
Appeal of Griffin, 140 N.H. 650, 654 (1996) (quoting Murphy v. Town
of Atkinson, 128 N.H. 641, 645-46 (1986)). Courts construe the
statute liberally, resolving all reasonable doubts in statutory
construction in favor of the injured employee in order to give the
broadest reasonable effect to the remedial purpose of workers'
compensation laws. Id. The exclusive remedy provision of the
statute, N.H. Rev. Stat. Ann. § 281-A:8 (Supp. 1998), precludes
claims under common law or statute by employees against employers
for personal injuries falling under § 281-A:2, including emotional
distress. Martin maintains that his injuries did not arise out of
his employment. Rather, he contends, his emotional distress was
the product of criminal and civil prosecutions instigated by the
defendant months after the employee-employer relationship
terminated, such that it was outside the "boundaries of time and
space created by the terms of employment." See Appeal of Griffin,
140 N.H. at 654.
Martin’s complaint undermines this argument, however. In
paragraph 18(c), he alleges that he "suffered great humiliation and
anguish as a result of losing his job, criminal arrest, arraignment
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on felony charges, as well as the anticipation and/or contemplation
of possible criminal sanction" (emphasis added). Furthermore, the
consequences of an employee’s termination are a foreseeable part of
employment, such that the statute bars claims arising from injuries
suffered as a direct result of the circumstances accompanying
termination. See Frechette v. Wal- Mart Stores, Inc., 925 F. Supp.
95, 99 (D.N.H. 1995) (citing Kopf v. Chloride Power Elecs., Inc.,
882 F. Supp. 1183, 1191 (D.N.H. 1995)). Hence, as Martin alleged
that his emotional injury was related to the termination of his
employment — as well as to the ensuing prosecution and civil action
— there is no basis for holding that his injuries did not arise out
of his employment. The district court thus correctly dismissed
Martin’s emotional distress claims against ACT.
B. Wrongful civil action and malicious prosecution
Next, we turn to the claims on which ACT was awarded
summary judgment. We review summary judgment rulings de novo after
considering the record evidence in "the light most favorable to,
and drawing all reasonable inferences in favor of, the nonmoving
party." Straughn v. Delta Air Lines, Inc., 250 F.3d 23, 33 (1st
Cir. 2001) (citing Feliciano De La Cruz v. El Conquistador Resort
& Country Club, 218 F.3d 1, 5 (1st Cir. 2000)). We will affirm the
summary judgment ruling if "the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to any
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material fact and that the moving party is entitled to a judgment
as a matter of law." Id. (citing Fed. R. Civ. P. 56(c)).
Counts I and II are claims for "wrongful civil action"
and malicious prosecution. To succeed on these claims, a plaintiff
must show that the defendant instituted a proceeding and caused
criminal charges to be filed against the plaintiff without probable
cause and with malice, and that the proceedings terminated in the
plaintiff’s favor.1 ERG, Inc. v. Barnes, 137 N.H. 186, 190 (1993)
(internal citations omitted). At issue here is whether Martin
adduced sufficient evidence of the absence of probable cause to
survive summary judgment. "Probable cause is defined to be such a
state of facts in the mind of the prosecutor as would lead a man of
ordinary caution and prudence to believe or entertain an honest and
strong suspicion that the person arrested is guilty." MacRae v.
Brant, 108 N.H. 177, 180 (1967) (quoting Cohn v. Saidel, 71 N.H.
558, 567 (1902)). While the determination of facts relevant to
probable cause is left to a factfinder, the existence of probable
cause is ultimately a question of law to be decided by the court.
Id.
Martin contends that ACT was aware that probable cause
did not exist. He asserts that the company provided the police
1
In New Hampshire, the term "malicious prosecution"
encompasses the initiation of a civil action as well as a criminal
prosecution. See, e.g., ERG, Inc. v. Barnes, 137 N.H. 186, 190
(1993); Robinson v. Fimbel Door Co., 113 N.H. 348, 350 (1973).
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with information that suggested guilt but withheld information that
suggested innocence, and that there were alternative explanations
for the evidence provided to Widener.
In support of these contentions, Martin points to his
affidavit, in which he addresses the four financial irregularities
upon which the prosecution was based. First, Martin stated that
his pay raise was not unauthorized, because Sullivan had agreed to
it. The raise was reflected in his paychecks from mid-April until
after his employment was terminated, implying that ACT approved it.
Second, as to the software training, Martin said that he
received a request for training from a Tech Tools customer, the
American Red Cross, while he was in negotiations to purchase Tech
Tools. Tech Tools had never done a training and did not offer such
services, but Martin was planning to offer such training through
his own company, Impact Technology. Hence, he had the payment for
software training sent to Impact Technology.
Third, as to the computer equipment, he stated that he
was no longer affiliated with Execute Technologies, the company
that provided and installed the equipment. He contended that
contrary to ACT’s assertions, Tech Tools did receive all of the
equipment it purchased. Martin explained that he created the
Execute Technologies invoice himself because Execute Technologies’s
software was not set up to do so at that time.
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Fourth, he disputed that Tech Tools was overcharged for
mailers created by his ex-wife, stating that she charged a
competitive market price as confirmed by checking with a competing
company. Finally, Martin suggested a motive for ACT’s civil and
criminal claims: to scuttle the deal to sell Tech Tools to Martin
so that it could sell the company to someone else.
Martin’s affidavit provided explanations for the evidence
against him that might have convinced a jury that he was not guilty
or liable, if the criminal or civil cases had proceeded. Probable
cause does not depend upon the ultimate merit of the allegations
against the plaintiff, however. Stock v. Byers, 120 N.H. 844, 848
(1980). And while Martin’s statements undoubtedly create a factual
dispute as to ACT’s malice in initiating its claims, the element of
malice is evaluated separately from probable cause. "If the
defendant had such information as would reasonably lead him to
believe that the accused had committed a crime, it is immaterial
that the defendant may have been actuated by malice or by motives
that were less than noble in bringing the charge." Id. "[T]he
absence of probable cause cannot be inferred from even express
malice." Id.
The evidence detailed supra – Martin’s pay raise, the
software training fee paid to Impact Technology, the computer
equipment billed from Execute Technologies, and the payment to
Calligraphy Creations – could have reasonably led ACT and the
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government to believe that Martin had stolen funds from ACT. The
record shows that the police performed a reasonably thorough and
independent investigation of the allegations before seeking an
arrest warrant, and the New Hampshire court issued the warrant
based on sufficient evidence.
Nor does Martin’s proffered motive for the prosecution
create a fact dispute. It is uncontroverted that there was no
contract in place for the sale of Tech Tools at the time of
Martin’s termination. Insofar as the record reveals, nothing
prevented ACT from simply declining to go forward with the deal
with Martin; it need not have trumped up charges against him.
Martin therefore cannot prevail on his malicious prosecution
claims, and summary judgment was appropriate.
C. Breach of contract and statutory wage claim
Counts V and VI state claims for breach of contract and
failure to pay wages as required by law. Martin asserted that he
spent over 500 hours developing the Spirit Saver product while
employed by Tech Tools, and that ACT breached its promise to give
him ten percent of the profits when the product entered the market.
New Hampshire’s Statute of Frauds, N.H. Rev. Stat. Ann.
§ 506:2, requires contracts not performed in one year to be in
writing. It is undisputed that the Spirit Saver agreement was
performed over eighteen months. Martin argues that the agreement
falls within an exception to the Statute of Frauds because ACT
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committed fraud in denying him compensation. See Tsiatsios v.
Tsiatsios, 140 N.H. 173, 176 (1995).
To date, New Hampshire courts have applied such
exceptions only in the narrow circumstances of land sale contracts.
See id.; Weale v. Mass. Gen. Hous. Corp., 117 N.H. 428, 431 (1977).
Even if we were to extend the fraud exemption to other fact
patterns, this case does not involve the sort of representation
recognized as fraud under New Hampshire law, i.e., a representation
"made with knowledge of its falsity or with conscious indifference
to its truth and with the intention of causing [plaintiff] to rely
on the representation." Patch v. Arsenault, 139 N.H. 313, 319
(1995).
Martin contends that the relevant exception to the
statute of frauds should not be limited to "fraud in the
inducement," but should extend to remedy any sort of contractual
unfairness. To date, New Hampshire courts have not recognized the
sort of broad equitable exception that Martin seeks, and we will
not extend state law in such a manner. Cf. Kassel v. Gannett Co.,
875 F.2d 935, 949-50 (1st Cir. 1989).
Martin has not pointed to sufficient evidence that ACT
acted with the requisite knowledge or indifference when it promised
Martin a share of the Spirit Saver profits in November of 1995.
Consequently, any action based on the alleged oral agreement
concerning Spirit Saver profits is barred by § 506:2. Because we
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affirm the dismissal of the contract claim, there is no foundation
for the statutory wage claim.
Affirmed.
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