Okmyansky v. Herbalife International of America, Inc.

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

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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.

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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

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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

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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.

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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.

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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

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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.

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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

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. . . 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.

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 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.

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 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

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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.

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 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'

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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.

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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

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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.

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Affirmed.

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