Martin v. Applied Cellular Technology, Inc.

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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