Nadherny v. Roseland Property Co.

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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