United States Court of Appeals
For the First Circuit
No. 04-1516
No. 04-1563
JEFFREY NADHERNY,
Plaintiff, Appellee/Cross-Appellant,
v.
ROSELAND PROPERTY COMPANY, INC.;
ROSELAND/PORTSIDE AT PIER ONE, LLC;
ROSELAND/OVERLOOK, LLC; CANTON PROPERTY
HOLDING, LLC; RANDOLPH PROPERTY HOLDING, LLC;
and ROSELAND HINGHAM, LLC.,
Defendants, Appellants/Cross-Appellees.
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Rya W. Zobel, U.S. District Judge]
Before
Lynch, Circuit Judge,
Campbell and Stahl, Senior Circuit Judges.
Laura R. Studen, with whom Shepard Davidson and Burns &
Levinson LLP were on brief, for plaintiff, appellee/cross-
appellant.
Kenneth M. Bello, with whom Josiah M. Black and Bello
Black LLP were on brief, for defendants, appellants/cross-
appellees.
November 23, 2004
LYNCH, Circuit Judge. This is a contract dispute between
a real estate development company, Roseland Property Company
("Roseland"), and the former head of its Boston Office, Jeffrey
Nadherny. The district court, on cross-motions for summary
judgment, entered judgment for Nadherny on his claims for
declaratory judgment on the meaning of the contract. It also
entered summary judgment for Roseland on Nadherny's claim of breach
of the implied covenant of good faith and fair dealing. Finally,
it found Nadherny's suit for damages under the contract to be
premature and dismissed that claim. Both sides appeal.
While the district court's construction of the contract
may or may not in the end be correct, the rules of summary judgment
preclude resolution of the issue now. We reverse entry of summary
judgment for Nadherny on his declaratory judgment claims, affirm
entry of summary judgment for Roseland on Nadherny's implied
covenant claims, and vacate the dismissal of the contract damages
claim.
I.
Roseland, a New Jersey based real estate development
firm, opened a Boston office in 1999 in order to develop real
estate projects in the Boston area. In doing so, they hired
Nadherny to head the Boston office as their main developer. The
employment contract at issue in this case was the result of months
of negotiation between Nadherny and Marshall Tycher, one of the
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principals of Roseland. The relevant portions of Nadherny's
employment contract with Roseland are set forth below. Key
provisions, inter alia, in dispute are found in the employment and
vesting clause at Paragraph Eight and the termination clause at
Paragraph Fifteen and are underlined.
1. Your employment will start May 1, 1999 and
will continue until terminated by you or
Roseland as provided below.
. . . .
4. Your title will be that of "Partner",
although your relationship to Roseland, and
your interests in projects, will be
established and governed by the provisions of
this agreement.
. . . .
8. You will be entitled to a participation
interest in all new projects which originate
out of Roseland's Boston office during the
period of your employment. Roseland usually
participates in projects through an affiliated
entity (the "Roseland Entity") established for
each project. Your participation interest in
each applicable project will be equal to 15%
of the cash distributed to the Roseland Entity
after the Roseland Entity has received cash
distributions equal to the Roseland Entity's
capital contributions plus an eight percent
(8%) return on such contributions for such
project. Your interest in such new projects
will vest at the same time that the Roseland
Entity's interests vest. Your participation
percentage is subject to review each year.
. . . .
14. Your position will include the development
of new business for Roseland. Roseland will
have and retain sole ownership and control of
all new business developed by you while at
Roseland, whether based on your own efforts or
on leads supplied by Roseland ("Roseland
Business"). You will have no proprietary or
other rights in any Roseland Business other
than as specifically provided in this
agreement, and all Roseland Business will
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remain with Roseland following termination of
our relationship for any reason.
. . . .
15. . . . .
The relationship between you and Roseland is
and at all times will be strictly an "at will"
relationship, and either you or Roseland may
terminate your employment and this
relationship at any time with or without
cause, for any reason or no reason, and with
or without notice.
Roseland terminated Nadherny's employment on February 8,
2002. At that time, both parties agree, there were four projects
that began to be developed during the time of Nadherny's employment
but that had not "vested" within the meaning of the contract terms,
because the closing or construction start dates had not yet passed.
Roseland informed Nadherny that he would not be entitled to a 15%
participation interest in these projects, since none of them had
vested prior to his termination. Nadherny disagrees.
II.
Nadherny filed a diversity action on June 28, 2002 in
federal court against Roseland and various project-specific
entities. He sued for breach of contract and sought both damages
and declaratory relief stating that he is entitled to a 15%
participation interest in the four projects that began during the
term of his employment but had not yet vested prior to the
termination of his employment. He also sued Roseland for breach of
the implied covenant of good faith and fair dealing, charging it
with having terminated his employment solely for the purpose of
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depriving him of his participation interests in the above deals.
Both parties moved for summary judgment on all counts. They did
not submit the case as a case stated.
The district court granted Nadherny's motion for summary
judgment on his declaratory judgment claim, dismissed his breach of
contract claim as unripe, and granted Roseland's motion for summary
judgment on Nadherny's breach of the implied covenant of good faith
and fair dealing claim. On the declaratory judgment claim, the
court held that the evidence supported Nadherny's interpretation of
the contract as to when Nadherny's interests in the development
projects were required to vest in order for him to be entitled to
a participation interest. Nadherny argued that the contract
entitled him to a participation interest in all projects
originating out of the Boston office while he was employed and that
the "vesting" language referred only to the time of payment. The
district court recounted Roseland's argument that:
(1) plaintiff admitted in deposition testimony
that "vesting" occurs at the moment of
"project closing/start": when the financing is
secure and construction is about to begin; (2)
none of the four projects for which plaintiff
seeks declaratory relief was even close to
"project closing/start" when he was fired; and
(3) the Contract expressly requires that
vesting occur during the period of employment
because, in addition to plaintiff's
employment, it allows the parties to terminate
at will "this relationship."
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The first two of Roseland's argument points were undisputed, save
as to one project.1
The court interpreted the contract by looking at the
contract language as well as context and "other factors." As to
contract language, the court concluded that the employment clause
in Paragraph Eight gave Nadherny a participation interest in the
projects, because they "originat[ed] out of Roseland's Boston
office during the period of [his] employment," and that language
was neither negated nor made ambiguous by the termination clause or
any other clause.
The "other factors" utilized by the court included the
fact that other reported decisions showed that other contracts
denying employees' rights to unvested stocks and other property
options had far more explicit language accomplishing those ends.
The court held that the lack of such language here suggests "that
the vesting of plaintiff's interests is not contingent upon
continued employment." The court also considered the circumstances
leading up to the execution of the contract, concluding that "it
makes perfect sense that plaintiff would forgo his up-front money
in exchange for a larger amount down the line." The court finally
looked at the nature of the duties and risks each party bore and
stated: "If plaintiff's interests had been contingent upon
1
The Overlook Ridge project presented unique circumstances
which, according to both parties, resulted in their reaching an
alternative arrangement with respect to the vesting date.
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continued employment, Roseland was bearing very little risk at
all." In short, the court concluded:
Taken as a whole, the language of the Contract
and absence of a termination provision as to
plaintiff's unvested real estate interests
(construed against Roseland, which drafted the
agreement), the circumstances leading up to
the Contract, and the case law concerning
analogous contracts all demonstrate that there
is no genuine issue of material fact as to the
interpretation of the Contract.
The court also granted summary judgment for Roseland on
Nadherny's claim for breach of the covenant of good faith and fair
dealing. The court held that there was no genuine issue of
material fact with respect to the bad faith element of the claim,
because Roseland had submitted ample evidence of "concern over
plaintiff's performance and that the risk they had taken in hiring
someone with limited development experience was not working in
their favor."
Finally, the court dismissed Nadherny's breach of
contract claim as unripe, since none of the projects in question
had yet vested, and any attempt to "quantify those interests in
present value [was] speculative at best."
Each side has appealed. Nadherny appeals the dismissal
of his breach of contract claim, arguing that once Roseland
repudiated the contract by stating its refusal to pay him any
participation interests, he was entitled to recover damages
immediately. Nadherny also appeals the grant of summary judgment
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to Roseland on his breach of the covenant of good faith and fair
dealing claim, arguing that there was ample evidence that he had
performed well prior to his hiring which raised a genuine issue of
material fact as to Roseland's bad faith in firing him.
Roseland appeals the grant of summary judgment to
Nadherny on his contractual declaratory judgment claim, arguing
that the district court erred in considering disputed extrinsic
evidence in concluding that the contract was unambiguous, and that
the contract is ambiguous and therefore summary judgment is
inappropriate.
III.
Our review of the grant of summary judgment is de novo.
Joyal v. Hasbro, Inc., 380 F.3d 14, 16 (1st Cir. 2004). We draw
all reasonable inferences in favor of the non-moving party. Id.
Declaratory Judgment on Meaning of Contract (Counts 1 - 5)
Contract interpretation questions, under Massachusetts
law, are ordinarily questions of law for a court; contract law,
unlike tort law, thus favors judicial resolution of disputes. See
Coll v. PB Diagnostic Sys., Inc., 50 F.3d 1115, 1122 (1st Cir.
1995). Whether a contract is ambiguous is a question to be
determined by the court. Alison H. v. Byard, 163 F.3d 2, 6 (1st
Cir. 1998). If a contract is unambiguous, the court should decide
its proper interpretation. Id. There is usually, then, no need to
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consult extrinsic evidence. See Lohnes v. Level 3 Communications,
Inc., 272 F.3d 49, 53 (1st Cir. 2001).
If a contract is ambiguous, the meaning of the ambiguous
terms often, but not always, presents a question of fact for a
jury. There are exceptions to this generality, some stemming from
the law of contracts and some stemming from the existence of
summary judgment procedure. For example, if, despite the
ambiguity, no reasonable person could interpret the contract as one
party does, the court may enter judgment against that party. Cf.
United States v. Data Translation, Inc., 984 F.2d 1256, 1259-63
(1st Cir. 1992) (affirming directed verdict on ground that no
reasonable person could construe ambiguous contract language in the
manner urged by appellant).2
In addition to the rules outlined above, other rules
further favor judicial resolution of contract disputes. There is
the interpretive ground rule that ambiguous terms are usually to be
construed against the drafter. See Kerkhof v. MCI Worldcom, Inc.,
282 F.3d 44, 51 (1st Cir. 2002). There is also the interpretive
rule that all of the contract's terms should be construed together
2
Similarly, there is some suggestion in Massachusetts law
that if the extrinsic facts are not in dispute, a judge should
decide the issue even if the outcome may be debatable. Fishman v.
LaSalle Nat'l Bank, 247 F.3d 300, 303 (1st Cir. 2001); Atwood v.
City of Boston, 37 N.E.2d 131, 134 (Mass. 1941); see also Baker v.
America's Mortgage Servicing, Inc., 58 F.3d 321, 326 (7th Cir.
1995) (adhering to the same rule under Illinois law). We need not
decide this latter point.
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to find a coherent whole. See Gomez v. Rivera Rodriguez, 344 F.3d
103, 121 (1st Cir. 2003). As such, a court may look to related
provisions of a contract to cast light on the meaning of disputed
language. See Nat'l Tax Inst., Inc. v. Topnotch at Stowe Resort
and Spa, No. 03-1924, 2004 WL 2494967, at *3 (1st Cir. Nov. 5,
2004).
Even when extrinsic evidence is considered, a judge may
conclude that the evidence is "so one-sided that no reasonable
person could decide the contrary." Boston Five Cents Sav. Bank v.
Sec'y of Dept. of Hous. and Urban Dev., 768 F.2d 5, 8 (1st Cir.
1985). Further, on summary judgment, a judge may determine that
the extrinsic evidence which is material is uncontested, and so
appropriately enter judgment. See Adria Int'l Group, Inc. v. Ferre
Dev., Inc., 241 F.3d 103, 111 (1st Cir. 2001). The usual rule,
however, is that it is for the jury to construe the contract, under
proper instructions, if evidentiary issues have to be resolved, so
long as the proper interpretation is fairly debatable. See Bourque
v. FDIC, 42 F.3d 704, 708 (1st Cir. 1994).
The district court correctly articulated all of these
governing principles. It also correctly asked whether the
proffered readings made sense –- both in the sense of trying to
accomplish something rational in light of how the parties are
situated, Shea v. Bay State Gas Co., 418 N.E.2d 597, 601-02 (Mass.
1981), and in light of the usage of the trade. Nat'l Tax Inst.,
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2004 WL 2494967, at *3 ("Agreements, especially commercial
arrangements, are designed to make sense. If one reading produces
a plausible result . . . that reading has a strong presumption in
its favor as against another reading producing an unlikely
result."). "In short, words matter; but the words are to be read
as elements in a practical working document and not as a crossword
puzzle." Fleet Nat'l Bank v. H&D Entm't, Inc., 96 F.3d 532, 538
(1st Cir. 1996). Our question is whether, given those rules and
the undisputed evidence, no reasonable person could construe the
contract contrary to Nadherny's interpretation. Our answer is
that, on its language alone, it is quite plausible that a
reasonable person could interpret the contract either way and the
answer may turn on disputed extrinsic evidence.
The Words Alone
Nadherny argues that the language in Paragraph Eight
should be construed to mean that he retains an interest in all
projects originating out of the Boston office during the time of
his employment, regardless of whether those projects vested during
the time of his employment. He argues that the vesting language in
the contract refers only to the time at which he is entitled to
receive the money, not the time at which his interest attaches to
the project.
The contract language is ambiguous and subject to
conflicting interpretations. At the least, three of the clauses
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appear to be at war with each other. The first sentence of
Paragraph Eight reads: "You will be entitled to a participation
interest in all new projects which originate out of Roseland's
Boston office during the period of your employment." This sentence
appears to give Nadherny rights in any project which originated
during the period Nadherny worked for Roseland. Whether that
reading is correct is cast into doubt by later sentences. That
reading is at odds with the fourth sentence of Paragraph Eight,
which reads: "Your interest in such new projects will vest at the
same time that the Roseland Entity's interests vest." This can be
read to give Nadherny rights only on vesting. But what "vesting"
means is unclear.
As the district court recognized, the parties agree that
such vesting occurs only at project closing/start. None of the
projects at issue,3 it is agreed, had reached the closing/start
stage at the time of termination of Nadherny's employment. In
conflict with the reading that Nadherny had no rights in the
project before vesting, Nadherny offers a supposedly reconciling
interpretation: that "vesting" refers not to his right to receive
payment but only as to when such payments are to be received. This
is far from self-evident. The first definition of the word "vest"
in Black's Law Dictionary is "to confer ownership of [property]
3
The parties reached an alternative arrangement with
respect to the Overlook Ridge Project. See supra note 1.
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upon a person." Black's Law Dictionary 1594 (8th ed. 2004). The
ambiguity about vesting creates an ambiguity about the first
sentence of Paragraph Eight.
There is a further ambiguity about the meaning of the
two clauses in Paragraph Eight when they are read against the at-
will employment and termination clause in Paragraph Fifteen, which
provides: "[E]ither you or Roseland may terminate your employment
and this relationship at any time with or without cause . . . ."
This clause raises the question of what "this relationship" means
and suggests it means something different from employment. But
then, in turn, "relationship" is used in varying ways in other
clauses in the contract. For example, in Paragraph Four, the
contract refers to the agreement governing both "your relationship
to Roseland and your interests in projects." This suggests that
"relationship" is different from "interests in projects," but
perhaps not from "employment." Yet it is also true that Paragraph
Fourteen of the agreement permits Nadherny to enter into other
development contracts after the "termination of our relationship."
That Paragraph also provides that "all Roseland Business will
remain with Roseland following termination of our relationship for
any reason." The "relationship" language complicates rather than
resolves the tension between the first sentence and the vesting
sentence in Paragraph Eight.
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The words alone do not decide the issue. The fact that
the issue could have been cleanly resolved by other language is of
little assistance. Either side to this dispute could have urged
other language to avoid these ambiguities in what is a badly
drafted agreement. The absence of such clarifying language helps
neither side and does not resolve the ambiguities.
Resort to the rule of construction of a contract against
the drafter is also of no utility. See Nat'l Tax Inst., 2004 WL
2494967, at *2 (Construction against the drafter is "a default rule
that arguably has more force where the parties differ in
sophistication or where standard forms are used . . . and should
only be used, as a last resort, if other aids to construction leave
the case in equipoise."); Boston Ins. Co. v. Fawcett, 258 N.E.2d
771, 776 (Mass. 1970) (refusing to construe the contract against
the drafter when parties negotiated the contract as equals). It is
unclear who drafted the contract -- it may well have been actively
negotiated between the parties. In his deposition, Nadherny was
asked if the contract "was a culmination of many months of
discussions and draft proposals back and forth between [him] and
Mr. Tycher," and Nadherny responded that it was. The record does
show that Roseland was represented by counsel who did some
drafting. But it does not show Roseland drafted the entire
contract, much less that the contract was not negotiated or that
Nadherny was not sophisticated.
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Other Factors
The district court itself resorted to extrinsic evidence
to resolve the contractual ambiguity, apparently viewing the words
as insufficient to resolve the issue. The evidence was disputed
about the parties' intent and about the industry practice. Nat'l
Tax Inst., 2004 WL 2494967, at *2 (Extrinsic evidence "includes
proof of negotiations between the parties . . . and general trade
practice."). As to intent, it is unclear whether the district
court relied on Nadherny's own affidavit which was attached to
Nadherny's motion for summary judgment. The court made no explicit
reference to it, but Nadherny urges it on us in support of the
court's decision. Roseland did not move to strike the affidavit
nor, at that point,4 submit a counter affidavit.
Nadherny's affidavit recited at Paragraph 7:
I always understood [the contract] to mean
that I, as Roseland's Boston Partner, obtained
an entitlement to participate in any project
that originated out of the Boston Office
during my employment, but that I would not
receive any actual proceeds from such projects
unless/until the Roseland Entity for any
particular project was paid back any capital
contribution that it might have made, plus an
additional 8% –- i.e., I would be paid when
Roseland was paid.
4
After it lost on the summary judgment motion, Roseland
filed a motion for reconsideration and submitted the affidavit of
Marshall Tycher. The district court denied the motion. We do not
consider the Tycher affidavit.
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Nadherny did not say he had ever expressed this understanding to
Roseland during the contract negotiations. Bypassing the dubious
admissibility of this testimony, the evidence cannot resolve the
ambiguity issue even if admissible. The unexpressed intention of
one party is not binding on the other party to a contract. The
intention or understanding must be mutual to have a contract.
Lonnqvist v. Lammi, 134 N.E. 255, 256-57 (Mass. 1922).
As to trade usage, the district court relied primarily on
its understanding of how similar contracts are written in the
industry to support its finding in favor of Nadherny. In doing so,
it looked to other Massachusetts and First Circuit cases and then
assumed the descriptions in those cases established industry
practice. The parties did not agree to this procedure. Industry
custom and practice was, instead, subject to dispute and, in the
absence of evidence, could not be the subject of judicial notice.
Int'l Star Class Yacht Racing Ass'n v. Tommy Hilfiger U.S.A., Inc.,
146 F.3d 66, 70-71 (2d Cir. 1998) (finding that facts adjudicated
in a prior case are not subject to judicial notice). When evidence
of custom and usage of the trade is used to interpret a contract and
the issue is disputed, summary judgment is inappropriate. Boston
Five Cents Sav. Bank, 768 F.2d at 9.
We reverse entry of summary judgment for Nadherny on
Counts 1-5 and remand for further proceedings.
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Covenant of Good Faith And Fair Dealing (Count 6)
In a cross-appeal, Nadherny asks that the entry of
summary judgment against his breach of the covenant of good faith
claim be reversed. Massachusetts law implies a covenant of good
faith and fair dealing in every contract. Starr v. Fordham, 648
N.E.2d 1261, 1266 (Mass. 1995). Nadherny's basic theory is that,
even if Roseland's interpretation of the contract were correct,
Roseland still terminated his employment in order to deprive him of
his participation interest in Roseland's projects, which is
actionable under the implied covenant theory. See Fortune v. Nat'l
Cash Register Co., 364 N.E.2d 1251, 1255-59 (Mass. 1977).
The district court held that Roseland had amply proven
for summary judgment purposes that it had reasons to terminate
Nadherny's employment in light of his performance and the risk it
had taken in hiring him. We agree. There is no evidence from
Nadherny that he did not have these performance problems and that
Roseland had not taken a risk in hiring him. The court also held
that the participation interests were too remote to justify an
inference that Roseland had fired Nadherny to avoid the vesting of
those interests. See Sargent v. Tenaska, Inc., 108 F.3d 5, 8-10
(1st Cir. 1997) (affirming summary judgment denial of claim of
breach of covenant of good faith and fair dealing based on
possibility that unvested interests in development projects might
vest at a later date after termination of employment).
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Nadherny relies on the facts that (1) Nadherny was not
told he would be terminated if his performance did not improve and
that (2) in a disengagement memo Roseland reiterated that the strong
points of his performance were his exceptional site preparation and
his very good selection of personnel and consultants. From this,
he argues, a jury could infer a wrongful purpose motivating the
termination of his employment. Nothing in these two facts
rationally leads to the inferences he wishes us to draw.
His evidence in support of the implied covenant claim is
simply insufficient. See James L. Miniter Ins. Agency, Inc. v. Ohio
Indem. Co., 112 F.3d 1240, 1250 (1st Cir. 1997) (summary judgment
appropriate where plaintiff "fails to identify evidence in the
record that would establish a genuine issue of material fact whether
[defendant] acted in bad faith"). We affirm entry of summary
judgment for Roseland on this count.
Contract Damages (Count 7)
The district court, having ruled in Nadherny's favor on
the meaning of the contract, was forced to face the issue of whether
the damages claims should then be addressed, or were premature, as
Roseland argued. Even under Nadherny's interpretation of the
contract, no payments were actually due him until the contracts
vested, and vesting was some years off, if the conditions for
vesting indeed ever happened. Although Nadherny provided an expert
affidavit purporting to reduce Nadherny's expectancy interest to
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present value, the court found that any interests Nadherny would get
from the projects were "temporally remote" and found any attempts
to quantify those interests into present value "speculative at
best."
Since we have reversed the summary judgment in Nadherny's
favor, we think it best to vacate the dismissal of the contract
damages claim. Nadherny may not prevail on liability; there is no
need to address now the timing of the decision on any claims for
damages.
Conclusion
We reverse entry of summary judgment for Nadherny on
Counts 1-5; we vacate the dismissal of the damages claim; we affirm
entry of summary judgment for Roseland on Count 6; and we remand for
further proceedings. So ordered.
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