United States Court of Appeals
For the First Circuit
No. 04-2607
EVGENY OKMYANSKY,
Plaintiff, Appellant,
v.
HERBALIFE INTERNATIONAL OF AMERICA, INC.,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Joseph L. Tauro, U.S. District Judge]
Before
Selya, Circuit Judge,
Hill,* Senior Circuit Judge,
and Lynch, Circuit Judge.
Joel Z. Eigerman, with whom Pavel Bespalko was on brief, for
appellant.
Annapoorni R. Sankaran, with whom Gary R. Greenberg, Louis J.
Scerra, Jr., and Greenberg Traurig, LLP were on brief, for
appellee.
July 15, 2005
__________
*Of the Eleventh Circuit, sitting by designation.
SELYA, Circuit Judge. Plaintiff-appellant Evgeny
Okmyansky claims an entitlement, contractually and under equitable
principles, to certain commissions and royalties. The district
court spurned the plaintiff's entreaties and granted summary
judgment for defendant-appellee Herbalife International of America,
Inc. (Herbalife). Okmyansky v. Herbalife Int'l of Am., Inc., 343
F. Supp. 2d 57, 60-62 (D. Mass. 2004). Concluding, as we do, that
neither the contract between the parties nor any equitable doctrine
warrants a different result, we affirm.
I. BACKGROUND
We rehearse the facts in the light most favorable to the
summary judgment loser (here, the plaintiff), consistent with
record support. Nereida-Gonzalez v. Tirado-Delgado, 990 F.2d 701,
702 (1st Cir. 1993).
The defendant is a Nevada corporation that maintains its
principal place of business in California. It manufactures weight-
management products, dietary supplements, and other personal care
items. The company markets its wares through a multi-level network
of independent distributors, who can earn money through three
channels. First, distributors purchase products from the company
at a sizable discount, mark them up, and resell them to consumers.
Second, distributors become sponsors by enlisting recruits (who, in
the idiom of the trade, are known as "downline distributors") and
earn commissions on products that these downline distributors
-2-
purchase from the company. Finally, distributors benefit from the
recruiting efforts of their downline distributors as the defendant
pays royalties to sponsors based on purchases attributable to their
recruits (who, in the idiom of the trade, become part of the
initial distributor's "lineage"). The sustainability of this
business model depends on ensuring that each downline distributor
is assigned to a single sponsor.
The plaintiff, a foreign national who resided in
Massachusetts between 1995 and 2003, became a Herbalife distributor
by executing a distributorship contract (the Contract) on July 21,
1992. The parties agree that the Contract incorporates by
reference the terms of Herbalife's career book, which contains both
a sales and marketing plan (the Plan) limning the terms of
compensation, and the rules of conduct and distributor policies
(the Rules).1
The Rules are of particular interest here. Pertinently,
Rule 4-A specifies that "[a]n individual may have only one
Herbalife Distributorship under one Sponsor." That command is
designed to prohibit dual distributorships, that is, the pairing of
a single downline distributor with more than one sponsor. Rule 4-C
1
The defendant has published several updated versions of the
career book since 1992. Neither party asserts that there are
relevant differences among the various editions. To eliminate any
question, the parties have agreed that a particular set of
documents submitted by the plaintiff during the summary judgment
proceedings embodies the relevant contractual terms. We proceed
accordingly.
-3-
speaks to the parties' rights in the event of a violation of Rule
4-A:
If Herbalife determines that an individual has
signed an Application for Distributorship, or
has worked or assisted in the development of
another Distributorship . . . while obligated
to a prior Distributorship, Herbalife has sole
and absolute discretion to determine the
disposition of both Distributorships, as well
as any penalties or sanctions it deems
necessary and appropriate for the
Distributorship and the Sponsoring
organization(s).
Rule 4-C also states that the first sponsor to recruit a
distributor and have him execute a contract with the defendant "is
considered the valid Distributorship."
Other generally applicable provisions of the Rules cede
broad discretion to the defendant with respect to violations of the
Rules. For example, Rule 8-L stipulates that when an infraction
has occurred, the defendant "may in its sole discretion take
whatever actions or measures it deems necessary and appropriate,
including but not limited to . . . suspension of earnings."
Similar language in Enforcement Procedure 1-G says that, should a
violation occur, the defendant, "[i]n its sole and absolute
discretion . . . may impose any remedy or sanction it determines
best addresses the issue."
In 1994, the plaintiff alerted the defendant that as many
as twenty-eight of his downline distributors had been enticed by
pirate sponsors to sign second distributorship agreements in
-4-
violation of the prohibition on dual distributorships. He
requested, inter alia, that the defendant restore to him the
commissions and royalties attributable to these downline
distributors. The defendant's response was painfully slow; for a
period of approximately four years, it investigated the entangled
lineages. The defendant eventually determined that certain of the
identified downline distributors had belonged in the plaintiff's
lineage. By letter dated February 9, 1999, the defendant informed
the plaintiff that it would restore these downline distributors to
his lineage on a going-forward basis, but without "monetary
adjustments." Put bluntly, the defendant refused to compensate the
plaintiff for the commissions and royalties that had been
misallocated during the currency of the dual distributorships.
II. TRAVEL OF THE CASE
On February 24, 2003, the plaintiff brought suit in a
Massachusetts state court alleging breach of contract. In an
amended complaint, he added counts based on quantum meruit,
promissory estoppel, and implied contract.
Noting the diverse citizenship of the parties and the
existence of a controversy in the requisite amount, the defendant
removed the case to the federal district court. See 28 U.S.C. §§
1332(a), 1441. Following a period of pretrial discovery, the
-5-
district court directed the parties to file cross-motions for
summary judgment. The parties complied.2
The cross-motions placed the parties at loggerheads. The
plaintiff argued that summary judgment ought to be entered in his
favor because the Contract entitled him to the diverted payments.
For its part, the defendant argued that it was entitled to judgment
as a matter of law because its decision not to compensate the
plaintiff for the bygone purchases made by the disputed downline
distributors and their progeny was within the discretion conferred
by the Contract. In due course, the lower court granted the
defendant's motion and denied the plaintiff's cross-motion. The
court concluded that under the plain terms of the Contract, it was
within the defendant's discretion to refuse to reallocate the
diverted payments and, therefore, no breach of contract had
occurred. Okmyansky, 343 F. Supp. 2d at 61-62. This timely appeal
ensued.
III. ANALYSIS
On appeal, the plaintiff advances two sets of arguments
in support of his claim of error. First, he asserts that the
Contract obligated the defendant to recompense him for the diverted
payments. As a subset of this argument, he maintains that he had
2
In their cross-motions, the parties sparred over whether the
plaintiff, if entitled to prevail on the merits, also was entitled
to summary judgment on the issue of damages. That issue is not
before us and we omit any further reference to it.
-6-
fully complied with the Rules, so the defendant was not at liberty
to exercise its contractual discretion to extinguish the payment
obligation.3 Second, he asseverates that even if the Contract does
not protect him, he is entitled to recovery on an equitable basis.
After delineating the standard of review, we address each of these
arguments in turn.
A.
Standard of Review.
A nisi prius court may grant summary judgment whenever
"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 material fact and that the
moving party is entitled to a judgment as a matter of law." Fed.
R. Civ. P. 56(c). These components are familiar: an issue is
genuine if "a reasonable jury could resolve the point in favor of
the nonmoving party," United States v. One Parcel of Real Prop.,
960 F.2d 200, 204 (1st Cir. 1992), and a fact is material if it
"has the capacity to sway the outcome of the litigation under the
3
Ceding discretion in a contract is not tantamount to
subjecting oneself to legalized tyranny. Every contract contains
an implied covenant of good faith and fair dealing. See, e.g.,
Lohnes v. Level 3 Communications, Inc., 272 F.3d 49, 61 (1st Cir.
2001) (applying Massachusetts law). Consequently, not even the
reservation of absolute discretion can clear the way for a totally
arbitrary and unprincipled exercise of a contracting party's power.
Here, however, the plaintiff has not claimed a breach of the
covenant of good faith and fair dealing, nor has he brought suit
for unfair or deceptive trade practices. See generally Mass. Gen.
Laws ch. 93A, §§ 2, 11.
-7-
applicable law," Nat'l Amusements, Inc. v. Town of Dedham, 43 F.3d
731, 735 (1st Cir. 1995).
After the moving party has averred that no genuine issue
of material fact stands in the way of brevis disposition, the
nonmovant bears the burden of demonstrating the movant's error.
See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
Once the court is persuaded that no such dispute exists, summary
judgment is appropriate so long as the applicable law entitles the
movant to prevail. See Celotex Corp. v. Catrett, 477 U.S. 317,
322-23 (1986).
We review a grant of summary judgment de novo. Noviello
v. City of Boston, 398 F.3d 76, 84 (1st Cir. 2005). In conducting
this review, we peruse the record in the light most amiable to the
appellant, drawing all reasonable inferences in his favor. Nat'l
Amusements, 43 F.3d at 735. We are not wed to the lower court's
rationale but, rather, may affirm the entry of summary judgment on
any ground made manifest by the record. Houlton Citizens'
Coalition v. Town of Houlton, 175 F.3d 178, 184 (1st Cir. 1999).
B.
The Breach of Contract Claim.
The parties agree that the Contract, consisting of the
distributorship agreement, the Plan, and the Rules, is valid and
that its language controls the resolution of this case. They also
agree that state substantive law applies in this diversity action
-8-
and that our choice of law must be guided by the choice-of-law
tenets of the forum state (here, Massachusetts). See Klaxon Co. v.
Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941). The parties
disagree, however, on which state's substantive law a Massachusetts
court would apply; the plaintiff favors Massachusetts law, while
the defendant extols the virtues of California law.
This is a tempest in a teapot. The parties concede that
the approach to interpreting the Contract would be the same under
either legal regime. We have said before, and today reaffirm, that
when the resolution of a choice-of-law determination would not
alter the disposition of a legal question, a reviewing court need
not decide which body of law controls. See Royal Bus. Group, Inc.
v. Realist, Inc., 933 F.2d 1056, 1064 (1st Cir. 1991); Fashion
House, Inc. v. K Mart Corp., 892 F.2d 1076, 1092 (1st Cir. 1989).
So it is here.4
We move next to the Contract itself. In construing it,
we adhere to the bedrock principle that, in the absence of
linguistic ambiguity, the text of a contract dictates its meaning.
Stony Brook R.R. Corp. v. Boston & Me. R.R., 157 N.E. 607, 610
(Mass. 1927). In following that principle, "words that are plain
and free from ambiguity must be construed in their usual and
ordinary sense." Ober v. Nat'l Cas. Co., 60 N.E.2d 90, 91 (Mass.
4
Although we could cite Massachusetts and California cases
interchangeably without affecting the outcome of this appeal, we
henceforth refer, for simplicity's sake, to Massachusetts case law.
-9-
1945); accord Citation Ins. Co. v. Gomez, 688 N.E.2d 951, 952
(Mass. 1998).
The plaintiff concedes, as he must, that the Contract
grants more than a modicum of discretion to the defendant. He
argues, however, that the defendant cannot employ this discretion
to address a violation of the dual distributorship prohibition in
a way that will disadvantage an "innocent party." There is,
however, a rather large fly in the ointment: the plaintiff's
position is in direct conflict with the unequivocal language of
Rule 4-C, which affords the defendant "sole and absolute discretion
to determine the disposition of both Distributorships." The
defendant did no more than exercise this discretion. It decided,
in effect, to consider the disputed downline distributors to be
part of other lineages during the period of investigation, to shift
those distributorships back to the plaintiff's lineage once the
investigation had concluded, and to allow payment of commissions
and royalties to flow accordingly (without any retrospective
adjustments).
That disposition — and its attendant financial
consequences — were well within the encincture of the "sole and
absolute" authority that Rule 4-C ceded to the defendant in
connection with dual distributorship problems. After all, Rule 4-C
by its terms grants the defendant discretion to impose any
"penalties or sanctions it deems necessary and appropriate for the
-10-
. . . Sponsoring organization(s)" that are ensnared in a dual
distributorship dilemma. This language shows beyond a shadow of a
doubt that the drafters of the Rule contemplated the possibility
that both sponsors might be affected by the company's disposition
of the conflicting claims. The plain meaning of the provision is
that in all dual distributorship situations, the defendant is the
sole decisionmaker empowered to disentangle the lineages and
dictate the associated financial consequences.
To cinch matters, the defendant's exercise of wide-
ranging discretion here is consistent with other provisions of the
Contract dealing with the company's enforcement of the Rules. For
example, Rule 8-L allows the defendant to respond to an infraction
of the Rules with "whatever actions or measures it deems necessary
and appropriate," including "suspension of earnings." Enforcement
Procedure 1-G reiterates the point, noting that, in the event of a
violation of the Rules, the company retains "sole and absolute
discretion" to "impose any remedy or sanction it determines best
addresses the issue." These terms, by the plain language, empower
the defendant to act as it did. The result may not be altogether
attractive — but it is the result for which the parties bargained.
In an effort to blunt the force of the plain meaning of
the provisions we have mentioned, the plaintiff presents three
counter-arguments. None is persuasive.
-11-
He first contends that the Plan, which outlines the
formulae for compensation based upon the purchases made by the
distributors in a sponsor's lineage, establishes an absolute right
to payment of the disputed commissions and royalties. This right,
the plaintiff asserts, is a core object of the Contract and cannot
be extinguished unilaterally. That line of argumentation overlooks
the hoary adage that a contract must be read as a whole. Given v.
Commerce Ins. Co., 796 N.E.2d 1275, 1277 (Mass. 2003) ("We
interpret the words of [the contract] in light of their plain
meaning, giving full effect to the document as a whole." (citation
omitted)); Cullen Enters., Inc. v. Mass. Prop. Ins. Underwriting
Ass'n, 507 N.E.2d 717, 725 n.27 (Mass. 1987) (similar). That adage
is applicable here.
Although the Plan describes how sponsors will be
compensated, Rule 4-C limits any right of payment in a dual
distributorship situation by conferring on the defendant the broad
authority to determine the flow of payments relating to a
distributorship that is the subject of competing sponsorship
claims. Under that regime — a regime to which the plaintiff agreed
when he executed the Contract — a sponsor bears the risk that a
distributor in his lineage will impermissibly enroll in another
distributor's lineage. Any supposed entitlement to payment must be
read in light of this shifted risk.
-12-
The same principle defeats the plaintiff's second foray,
in which he suggests that Rule 11-A constrains the defendant's
exercise of its discretion. Rule 11-A states that the
"Distributor/Sponsor relationship" is "the foundation" of the Plan
and that the "rules of the company protect the rights of the
Sponsor." This is general language, aspirational in nature. Even
if we were to interpret it as something more, we would have to read
it in light of the Contract as a whole.
That gets the grease from the goose. Rule 4-C, in
empowering the defendant to determine the disposition of dual
distributorship claims, allows it to take steps to define the
relative rights of the competing sponsors. Since Rule 11-A does
not diminish, let alone eliminate, the defendant's reserved
discretion to declare a sponsor's rights in a Rule 4 situation, it
does not advance the plaintiff's cause.
The plaintiff's third contention derives from his reading
of the discretionary clauses themselves. He posits that the
defendant's discretion may operate only against those who violate
the Rules, not against those who adhere scrupulously to them. The
difficulty with this proposition is textual: the plain language of
the Contract imposes no such limitation on the exercise of the
manufacturer's discretion.
Although the discretion clauses in Rule 4-C, Rule 8-L,
and Enforcement Procedure 1-G are triggered by a violation, the
-13-
ensuing grant of discretion does not restrict the defendant's
remedial authority to actions taken against the transgressor or
even to actions that do not detrimentally affect innocent parties.
Rather, the grant of discretion is strikingly broad; the company
may "impose any remedy . . . it determines best addresses the
issue." That language plainly encompasses the possibility that the
solution fashioned by the company may have collateral consequences
for those who are without fault.
The plaintiff mounts a subsidiary argument that the term
"sanction," as used in Rule 4-C and Enforcement Procedure 1-G, can
only be read to refer to an action taken against a wrongdoer. This
subsidiary argument has a patina of plausibility. Normally — and
this case is not abnormal — courts may rely upon standard
dictionaries as interpretive aids in discerning the meaning of a
contractual term. See In re Liquidation of Am. Mut. Liab. Ins.
Co., 802 N.E.2d 555, 560 (Mass. 2004) (stating that "[n]ormally, a
dictionary definition of a term is strong evidence of its common
meaning"); see also United States v. Nason, 269 F.3d 10, 16 (1st
Cir. 2001). A typical dictionary source defines sanction as "[a]
penalty or coercive measure that results from failure to comply
with a law, rule, or order." Black's Law Dictionary 1369 (8th ed.
2004). Thus, the construct that a sanction is an action ordinarily
taken against a wrongdoer has some traction.
-14-
In the last analysis, however, that construct does not
take the plaintiff very far. Rule 8-L also allows the defendant to
take "actions and measures it deems necessary and appropriate";
Enforcement Procedure 1-G permits it to effectuate "any remedy" to
address an issue related to a violation. The commonsense meaning
of this language encompasses actions that are not punitive in
nature. See, e.g., id. at 1320 (defining "remedy" as "[t]he means
of enforcing a right or preventing or redressing a wrong," without
any reference to a wrongdoer). The defendant's disposition of the
competing dual distributorship claims easily can be characterized
either as a "remedy" for an intolerable situation or as an action
that the company, in its sole discretion, deemed necessary and
appropriate to rectify that situation.
The plaintiff attempts to parry this thrust by arguing
that the very fact that the term "remedy" could be construed to
authorize the defendant to take actions detrimental to innocent
distributors renders that reading "contrary to the manifest intent
of the contract." Appellant's Br. at 19. This argument is
circular: the manifest intent of contracting parties must be
gleaned, in the first instance, from the plain meaning of the
contractual language. See Hakim v. Mass. Insurers' Insolvency
Fund, 675 N.E.2d 1161, 1164 (Mass. 1997). The fact that, in
ordinary usage, the term "remedy" has a broad meaning does not by
some mysterious alchemy render it contrary to the parties'
-15-
manifested intent. Whether or not a particular party had
considered the breadth of that term before signing on the dotted
line is a different matter.
The short of it is that the Contract manifests an intent
to grant the defendant wide latitude to protect its interest in
maintaining an ordered hierarchy of distributorships. By
conferring sole and absolute discretion upon the defendant to deal
with dual distributorships, the Contract placed the risk of
financial loss associated with such situations on the sponsors.
This result is a function of the language of the Contract and is
perfectly consistent with the business realities that the defendant
faced. The incidence of dual distributorships places the
manufacturer in an untenable position. From a commercial
standpoint, it is a reasonable solution to say, in effect, that the
manufacturer will pay commissions and royalties only once; that it
will investigate colorable complaints; and that, after resolving a
complaint, its resolution will operate only prospectively.5 Had
the plaintiff wanted better protection for his lineage, he should
have bargained for a more nuanced arrangement. Accordingly, we
conclude that the plaintiff's right to payment was circumscribed by
the defendant's power to craft a remedy. Since the defendant acted
5
We emphasize that, here, the defendant did not receive a
windfall but, rather, merely misallocated the payments that were
due. Had it paid neither claimant, this might well be a different
case.
-16-
within the sphere of this authority in declining to pay the
plaintiff commissions and royalties that it already had paid
(albeit mistakenly) to another sponsor, the breach of contract
claim fails. The bottom line is that there was no breach.
C.
Equitable Claims.
The plaintiff's fallback position consists of an attempt
to resurrect the equitable claims that were presented in his
amended complaint but never mentioned in the summary judgment
proceedings. This is both too late and too little.
The argument is made too late because claims not
presented to the district court cannot be introduced for the first
time on appeal. See United States v. Bongiorno, 106 F.3d 1027,
1034 (1st Cir. 1997); Teamsters Union v. Superline Transp. Co., 953
F.2d 17, 21 (1st Cir. 1992). When a plaintiff asserts a particular
claim in a complaint and then seeks summary judgment on all claims
but fails to present arguments in support of that claim, plaintiff
is left in the same position as if he had not asserted the claim at
all. See Rocafort v. IBM Corp., 334 F.3d 115, 121 (1st Cir. 2003).
That is the situation here. The plaintiff sought summary
judgment on all claims, but relied exclusively upon his battery of
breach of contract arguments, to the exclusion of his equitable
theories. That constitutes a waiver: he cannot now raise
equitable claims that he could have, but did not, assert before the
-17-
district court. See B & T Masonry Constr. Co. v. Pub. Serv. Mut.
Ins. Co., 382 F.3d 36, 40 (1st Cir. 2004) (explaining that legal
theories not squarely raised below are not preserved for appeal).
In all events, the plaintiff's equitable claims have too
little substance. The plaintiff concedes the existence of a valid
express contract between the parties — and the existence of such a
contract bars the application of the equitable doctrines that he
belatedly invokes. See Boswell v. Zephyr Lines, Inc., 606 N.E.2d
1336, 1342 (Mass. 1993) (explaining that where a valid contract
exists, "the law need not create a quantum meruit right to receive
compensation for services rendered"); Zarum v. Brass Mill Materials
Corp., 134 N.E.2d 141, 143 (Mass. 1956) (holding that "[t]he law
will not imply a contract where there is an existing express
contract covering the same subject matter"); id. (noting that an
express contract leaves "no room . . . for recovery on principles
of unjust enrichment").
IV. CONCLUSION
We need go no further. For the reasons elucidated above,
we hold that the defendant did not breach the Contract when it
declined to remunerate the plaintiff in connection with the
diverted payments. Similarly, we hold that the defendant is not
liable to the plaintiff in equity. Accordingly, the district court
did not err in granting summary judgment in the defendant's favor.
-18-
Affirmed.
-19-
Okmyansky v. Herbalife International of America, Inc.
Court: Court of Appeals for the First Circuit
Date filed: 2005-07-15
Citations: 415 F.3d 154
Copy CitationsCombined Opinion