United States Court of Appeals
For the First Circuit
No. 99-2063
LILIA TWOMBLY, f/k/a LILIA MAJERCZYK,
Plaintiff, Appellant,
v.
ASSOCIATION OF FARMWORKER OPPORTUNITY PROGRAMS,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MAINE
[Hon. Morton A. Brody, U.S. District Judge]
Before
Selya, Boudin, and Lynch,
Circuit Judges.
David M. Lipman, with whom Karen E. Lipman and Lipman & Katz, P.A.
were on brief, for appellant.
Mark K. McDonough, with whom Cuddy & Lanham was on brief, for
appellee.
May 16, 2000
LYNCH, Circuit Judge. In this diversity action the
district court entered summary judgment against Lilia Twombly, an
AmeriCorps participant, on her breach of contract claims against her
AmeriCorps contracting agency, the Association of Farmworker
Opportunity Programs (AFOP). Twombly claimed that AFOP failed to
provide her with "health and medical coverage" and "worker's
compensation" as recited in her contract. We affirm summary judgment
on the health coverage claim and reverse on the workers' compensation
claim. Resolution of the latter claim involves exploration of the
Restatement (Second) of Contracts provisions excusing performance
because of impracticability caused by governmental regulation.
I.
Twombly had a contract with AFOP to run pesticide safety
programs for farm workers from January 8, 1995, through December 15,
1995. On March 23, 1995, she executed a two page contract with AFOP,
under which AFOP agreed to provide her with a stipend and benefits
including "health and medical coverage, child care if needed, [and]
worker's compensation." AFOP enrolled her in a health insurance policy
issued by Allianz/SRC, which had a maximum payout of $10,000. AFOP
paid 85% of the premiums; the Training and Development Corporation
(TDC), the host agency for AFOP in Maine, paid the remaining 15%.
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For her part, Twombly provided the services she was required
to provide under the contract. Participants such as Twombly had full-
time work assignments averaging 40 hours per week and were paid
stipends at an annual rate of $7,650 in exchange for their service.
Twombly was the single parent of a seven-year-old child and relied on
AFOP's promises to provide health insurance and workers' compensation.
On June 16, 1995, Twombly was in a serious automobile
accident on Interstate 95 while heading back from a training
demonstration in Houlton, Maine. She suffered severe injuries that
resulted in a substantial loss of physical and mental functioning. The
health insurer paid out the $10,000 maximum. Twombly's plight is
described in another opinion arising out of her accident. See Twombly
v. AIG Life Ins. Co., 199 F.3d 20, 21-23 (1st Cir. 1999).
In 1997, Twombly filed an application for workers'
compensation with the Maine Workers' Compensation Board. On October
28, 1998, the Board dismissed the petition against AFOP. As to AFOP,
the Board concluded that while Twombly was AFOP's employee under Maine
workers' compensation law, Maine law was preempted by the National and
Community Service Act of 1990 (NCSA), 42 U.S.C. § 12501 et seq. The
NCSA states that an AmeriCorps participant such as Twombly "shall not
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be considered to be an employee of the program in which the participant
is enrolled." Id. § 12511 (17).1 Twombly then brought this suit.
II.
At the trial court, Twombly argued that the contract was
ambiguous as to the scope of the health insurance AFOP was required to
provide. She also said that resolution of the ambiguity required
reference to certain federal minimum standards, specifically those
under the NCSA. The relevant provision states:
A State or other recipient of assistance
under section 12571 of this title shall provide
a basic health care policy for each full-time
participant in a national service program carried
out or supported using the assistance, if the
participant is not otherwise covered by a health
care policy. Not more than 85 percent of the
cost of a premium shall be provided by the
[Corporation for National and Community Service
(CNCS)], with the remaining cost paid by the
entity receiving assistance under section 12571
of this title. The [CNCS] shall establish
minimum standards that all plans must meet in
order to qualify for payment under this part, any
circumstances in which an alternative health care
policy may be substituted for the basic health
care policy, and mechanisms to prohibit
participants from dropping existing coverage.
42 U.S.C. § 12594(d)(1) (emphasis added); see also 45 C.F.R.
§ 2522.250(b) (requiring grantees to provide eligible participants with
minimum health benefits).
1 The Board denied the petition against TDC on the ground that
Twombly was not an employee of TDC.
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The district court concluded that the phrase "health and
medical coverage" was unambiguous and that Twombly was in fact provided
the health insurance required by the contract, so AFOP did not breach
the contract. The district court determined that the NCSA had no
bearing on whether the contract was ambiguous, and that any failure to
comply with the CNCS minimum standard may or may not give rise to a
cause of action, but that that was a separate matter from breach of
contract.
In response to Twombly's claim for workers' compensation,
AFOP argued that the claim for workers' compensation was both barred by
res judicata and preempted by federal law. AFOP also argued that its
performance was excused because of legal impossibility. The court
rested its grant of summary judgment for AFOP on the last ground,
finding that under § 264 of the Restatement (Second) of Contracts there
was an intervention of federal law that made performance impracticable
and therefore discharged any duty. See Restatement (Second) of
Contracts § 264 cmt. a (1981). The district court also relied on
American Mercantile Exchange v. Blunt, 66 A. 212 (Me. 1906), in
reaching this conclusion.
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III.
Our review on summary judgment is de novo. See National
Foreign Trade Council v. Natsios, 181 F.3d 38, 49 (1st Cir.), cert.
granted, 120 S. Ct. 525 (1999). On appeal, Twombly argues that AFOP
was not entitled to summary judgment. She says that the district court
erred in finding the contract unambiguous as it related to health
coverage and granting AFOP summary judgment on the issue. Twombly also
argues that AFOP contracted to provide her with workers' compensation,
either under the state system or through private purchase of equivalent
coverage, and that performance of this obligation was not excused.
A. Health Insurance
Twombly argues that the district court did not apply the
principle that a contract is construed against the drafter; in any
event, she says, the contract is ambiguous as to the scope of the
promise to provide health insurance, and she was entitled to discovery
on what AFOP intended the phrase "health and medical coverage" to mean.
She says typical health insurance policies do not contain dollar
limits, and the policy that AFOP provided did not comply with the
federal requirements for AmeriCorps Programs. AFOP says, supported by
affidavit, that its minimal health policy was in compliance with
federal law regulating AmeriCorps, and that, in fact, the insurance was
exactly what was arranged for and recommended by AmeriCorps.
The question whether contractual terms are ambiguous is,
under Maine law, initially a matter of law for the court. See
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Fitzgerald v. Gamester, 658 A.2d 1065, 1069 (Me. 1995). This case
comes to us on summary judgment, and so the question of contractual
meaning has a factual context.
We affirm the entry of summary judgment on the health
insurance claim. The payment of $10,000 in benefits met AFOP's
contractual obligation to provide health and medical coverage. There
may be extreme cases where the health coverage provided is so minimal,
say $1 worth of coverage, that it cannot be said to comply with the
obligation to provide health insurance. But that is not this case.
Further, the federal regulations required AFOP to provide "minimum"
health benefits as determined by the CNCS, and the policy met that
definition. See 45 C.F.R. § 2522.250(b). The defendants produced
undisputed evidence that the insurance provided was exactly what the
CNCS, which was responsible for setting the minimum benefits, arranged
for and recommended.2
B. Workers' Compensation
The district court erred, Twombly argues, in granting summary
judgment on the workers' compensation claim and in relying on
Restatement § 264. She also says it was possible for AFOP to perform
even if the state denied benefits. AFOP, she points out, could have
2 Twombly says that her requested discovery was restricted by
the district court. This is true, but most of the discovery sought was
irrelevant to this issue. The defendant's affidavit -- establishing
that AFOP complied with what CNCS recommended -- was filed in support
of the summary judgment motion, and plaintiff did not contest the fact
asserted or seek discovery on this specific issue. We take this fact
as undisputed.
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purchased the equivalent of workers' compensation insurance to meet its
obligations. The fact that AFOP purchased a workers' compensation-like
policy from AIG, see Twombly, 199 F.3d at 21-22, is evidence, Twombly
claims, of AFOP's intent that she be provided with such benefits.3 If
AFOP's obligation were meant to be limited, Twombly says, then the
contract would have said "worker's compensation to the extent provided
by law." Finally, Twombly says that since the Workers' Compensation
Board determined it did not have jurisdiction, there is no res judicata
effect because there was no adjudication on the merits.
AFOP says, citing 4 Arthur Larson, The Law of Workmen's
Compensation § 87.73 (1989), that if it were the intent of the parties
that AFOP privately purchase the equivalent of workers' compensation,
then the contract should have explicitly said so and referred to a
scale of benefits. Further, AFOP claims that Twombly showed that she
interpreted the contract to mean the standard state-operated system by
filing for benefits. (Plaintiff says this is not so; the employer
could have chosen not to contest her application in the state system.)
AFOP also says that res judicata results from the unappealed Board
finding.
We think the issue turns on whether the Restatement (Second)
of Contracts excuses AFOP from performance of a commitment to provide
3 At the Workers' Compensation Board hearing, AFOP's witness
seemed to take the position that any workers' compensation obligation
could and should be satisfied by AFOP's insurer, AIG. That issue is
not before us.
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workers' compensation. The commitment is unambiguous. set the
We
factual context for discussing the Restatement issue. Based in
Virginia, AFOP is a private non-profit group with national operations.
AFOP is an AmeriCorps grant recipient. As such, it is, as it knew,
subject to the terms of the NCSA, the federal act governing grants from
the AmeriCorps program. Since 1991, the NCSA has provided that
participants in an approved AmeriCorps program -- such as Twombly --
"shall not be considered employees of the program." National and
Community Service Technical Amendments Act of 1991, Pub. L. No. 102-10
§ 3(4), 105 Stat. 29 (codified as amended at 42 U.S.C. § 12511(17)(B)).4
Despite this language, AFOP prepared a standard form contract for its
participants, which Twombly signed in 1995. The contract promised that
AFOP would provide workers' compensation. Twombly accepted the
contract in reliance on that promise and performed her part of the
contract by working for AFOP.
When Twombly filed for workers' compensation benefits with
the state, AFOP had the choice to contest or not contest the claim. If
AFOP had not contested the claim and it had been allowed, AFOP would
have borne the costs of the compensation. Alternatively, if the claim
4 There is no need to decide the issue of whether the federal
Act provision preempts the Maine Workers' Compensation Act, as the
Workers' Compensation Board held. The transcript before the Board
contains evidence that the U.S. Department of Labor considers
participants not to be federal employees for purposes of the federal
unemployment compensation system, but leaves it to the states to
determine eligibility for the state unemployment systems. Nor is there
any need to decide what, if any, are the res judicata effects of that
decision as to Twombly given our disposition of the matter.
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for benefits had been denied (whether the claim had been contested or
uncontested), AFOP could have paid Twombly workers' compensation in
another form.
The provisions of the Restatement (Second) of Contracts at
issue have to do with situations in which a court relieves a party from
performance of an obligation because
[a]n extraordinary circumstance may make
performance so vitally different from what was
reasonably to be expected as to alter the
essential nature of that performance. In such a
case the court must determine whether justice
requires a departure from the general rule that
the obligor bear the risk that the contract may
become more burdensome or less desirable.
Restatement (Second) of Contracts ch. 11, introductory note at 309-10.
The analysis begins with Restatement § 261, which provides:
Discharge by Supervening Impracticability
Where, after a contract is made, a party's
performance is made impracticable without his
fault by the occurrence of an event the non-
occurrence of which was a basic assumption on
which the contract was made, his duty to render
that performance is discharged, unless the
language or the circumstances indicate the
contrary.
Id. § 261. Importantly, § 261 states "a principle broadly applicable
to all types of impracticability" and "'deliberately refrains from any
effort at an exhaustive expression of contingencies.'" Id. § 261 cmt.
a (quoting U.C.C. § 2-615 cmt. 2). The rules stated in §§ 262-64 guide
the determination whether the principle of § 261 applies in specific
circumstances.
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In entering summary judgment on this claim, the district
court relied on the Restatement (Second) of Contracts § 264, which
provides:
Prevention by Governmental Regulation or Order
If the performance of a duty is made
impracticable by having to comply with a domestic
or foreign governmental regulation or order, that
regulation or order is an event the non-
occurrence of which was a basic assumption on
which the contract was made.
Id. § 264. This is generally thought to be an issue of law for the
court, not the jury, to decide. See id. ch. 11 introductory note at
310. While Maine has not yet decided whether it will adopt this
section, we assume arguendo that it will look to § 264 and this part of
the Restatement for guidance. See Bouchard v. Blunt, 579 A.2d 261, 263
n.3 (Me. 1990) (referring to Restatement (Second) of Contracts § 261).
Section 264 of the Restatement provides a specific instance
of the general doctrine of "Discharge by Supervening Impracticability"
contained in § 261. See Restatement (Second) of Contracts § 264 cmt.
a, illus. 1, 2. By the terms of its commentary, § 264 applies to
supervening government actions, as does § 261. See id. § 264 cmt. a;
id. § 261 (referring to performance made impracticable "after a
contract is made") (emphasis added). The 1991 amendment of the NCSA
cannot be supervening as to a 1995 contract. Indeed, the Restatement
says that when the government prohibition already exists at the time of
the making of the contract, the rule stated in § 266(1) applies. See
Restatement (Second) of Contracts § 264 cmt. a ("If the prohibition or
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prevention already exists at the time of the making of the contract,
the rule stated in § 266(1) rather than that stated in § 261 controls,
and this Section applies for the purpose of that rule as well.").
Thus, § 261 does not apply, and we turn to § 266(1). Section
266(1) only excuses performance
[w]here, at the time a contract is made, a
party's performance under it is impracticable
without his fault because of a fact of which he
has no reason to know and the non-existence of
which is a basic assumption on which the contract
is made, no duty to render that performance
arises, unless the language or circumstances
indicate the contrary.
Id. § 266(1). AFOP is not entitled to relief under § 266(1). AFOP, an
organization of national scope and the drafter of the form contract,
cannot be said to be "without fault," or not to have reason to know of
the definition of "participant" enacted in 1991. See In re Estate of
Zellmer, 82 N.W. 2d 891, 894 (Wis. 1957) (holding that estate was not
excused from performance under Restatement where decedent should have
known of lapsed premiums on insurance policy). It is equally clear
that the "fact" in question was material. AFOP knowingly promised
workers' compensation, and Twombly relied on that promise in accepting
AFOP's offer.
Finally, the "language and circumstances" of the contract are
such that AFOP is not excused from performance under § 266(1). Even if
AFOP were in fact ignorant of the 1991 provision -- and the evidence
presented to the Workers' Compensation Board is to the contrary -- the
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risks of that ignorance are better borne by AFOP than by the individual
AmeriCorps participants. This is not a situation where a later law
makes it illegal for a plaintiff to perform or partially perform but
plaintiff still seeks to be paid the contract price, as in American
Mercantile Exchange, 66 A. at 213-14, the case on which the district
court relied. Rather, after entering into the contract in reliance on
the promise of workers' compensation, Twombly performed her side of the
contract. It would be unjust to say AFOP is excused from its
obligation.5 If AFOP did not wish to oblige itself to provide workers'
compensation in any form, or to provide it if and only if the state
Workers' Compensation Board approved, it could have drafted the
contract accordingly.
We affirm the entry of summary judgment on the health
coverage claim, reverse the entry of summary judgment on the workers'
compensation claim, and remand for further proceedings. No costs are
awarded.
5 The Maine Workers' Compensation Board determined that
"Twombly was traveling as part of her duties . . . [at] AFOP" at the
time of her injury. We take that as established. If there are any
remaining issues about coverage, they may be explored on remand.
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