Catex Vital Gas, Inc v. Wolfe

• Court: Court of Appeals for the First Circuit
• Decided: June 4, 1999
• Docket: 98-1840
• Status: Published

Opinion

USCA1 Opinion

                  United States Court of Appeals

                      For the First Circuit

                       ____________________



No. 98-1840



                      CATEX VITOL GAS, INC.,

                       Plaintiff, Appellee,



                                v.



                        STEPHEN RAY WOLFE,

                      Defendant, Appellant.



                       ____________________



                        MICHAEL R. KUTSCH,

                       Defendant, Appellee.



                       ____________________



           APPEAL FROM THE UNITED STATES DISTRICT COURT



                FOR THE DISTRICT OF MASSACHUSETTS



           [Hon. Nancy J. Gertner, U.S. District Judge]



                       ____________________



                              Before



                      Selya, Circuit Judge,

                  Cudahy, Senior Circuit Judge,

                    and Stahl, Circuit Judge.



                      _____________________



    Pascal Paul Piazza, with whom Maurice Bresenhan, Jr. and

Zukowski & Bresenhan, L.L.P. were on brief, for appellant.

    Nicholas T. Christakos, with whom Joel E. Hoffman, Gail L.

Westover, Sutherland Asbill & Brennan LLP, Joan M. Griffin and

Casner & Edwards were on brief, for appellees.


____________________



                           June 2, 1999

                       ____________________         CUDAHY, Senior Circuit Judge.  In 1994, Catex Vitol Gas,

Inc.(CVG) fired one of its executives, Stephen Wolfe.  Wolfe now

appeals two orders granting summary judgment to CVG and its

president, Michael Kutsch, on claims and counter-claims related to

his termination.  We affirm both orders.

                                I.

         In 1991 Catamount, a Massachusetts natural gas company

owned by Kutsch, hired Wolfe to open and manage a branch office in

Houston.  With the advice of counsel, Wolfe negotiated and signed

an employment contract.  The particulars of this contract are at

issue here, so we recite them with some specificity. 

         Wolfe agreed to serve as a company Vice President from

March 1, 1991 until February 28, 1992 (Initial Employment Period).

According to  3 of the contract, Wolfe's tenure would "continue

from year to year thereafter and [could] be canceled by [Wolfe]

upon thirty days prior written notice."  In consideration of his

services, the company paid Wolfe a $100,000 yearly base salary. 

Any increase in salary or additional compensation, such as a bonus,

was at the "sole discretion" of the company's Board of Directors. 

         The contract also outlined termination processes. 

Section 7.2 allowed Wolfe to terminate his employment "upon the

expiration of the Initial Employment Period in accordance with the

terms of this Agreement."  Section 7.1 permitted the company to end

the relationship

                      a) upon the expiration of the Initial

           Employment Period in accordance with the

           terms of this Agreement, (b) at any time

           without notice for "cause" as defined

           below, (c) at any time without notice

           without cause, subject to section 7.5

           below, (d) upon the death of the Employee,

           or (e) in the event of the Employee's

           disability  . . .

Section 7.5 then defined what compensation would be due Wolfe upon

termination of his employment.  It provided in full:

                      Upon termination of the Employee's

           employment with the Company in accordance

           with clause (a), (b), (d) or (e) of

           Section 7.1, all compensation and benefits

           under this Agreement will cease, effective

           the date of termination.  Upon termination

           of the Employee's employment with the

           Company in accordance with clause (c) of

           Section 7.1 prior to March 1, 1992, ("the

           Guaranteed Payment Date"), the Employee

           will be paid his Base Salary through such

           Guaranteed Payment Date in accordance with

           the Company's ordinary payroll practices. 

           Upon termination of the Employee's

           employment with the Company in accordance

           with clause (c) of Section 7.1 after the

           Guaranteed Payment Date, the Employee will

           be paid his Base Salary for thirty days

           after such termination in accordance with

           the Company's ordinary payroll practices. 

           Other than as specifically set forth in

           this Section 7.5 or as otherwise required

           by law, the Employee will not be entitled

           to receive any compensation or benefits

           after termination of his employment with

           the Company.



The contract also contained an integration clause,  11, which

provided:

                      This Agreement constitutes the entire

           Agreement between the parties with regard

           to the subject matter hereof, superseding

           all prior understandings and agreements,

           whether written or oral.  This Agreement

           may not be amended or revised except by a

           writing signed by the parties.



         Wolfe's tenure at Catamount proceeded without incident 

through the Initial Employment Period.  Wolfe traded natural gas

for the company out of its Houston office and frequently traveled

to Boston to confer with colleagues.  In 1992, the company, by this

time re-named Catex Energy Inc., instituted a Bonus and Guaranty

Plan (BGP) to provide "an incentive to selected key employees of

the Company similar to that to be derived from holding shares of

the common stock, no par value per share ("Common Stock"), of the

Company, but without transferring to such employees ownership of

any capital stock of the Company."  The BGP is also at issue here,

so we limn its particulars as well.  

         The BGP allowed Kutsch to designate participants for a

given fiscal year and required each Participant to execute an

Accession Agreement for that year.  Section 2(a) stated that "No

ownership of any capital stock of the Company will be transferred

or otherwise granted to any employee of the Company as a result of

the designation or participation of such employee as a

Participant."  In the event of the sale of "all of the outstanding

Common Stock of the Company,"  4(a) entitled BGP Participants to

some compensation which was to be determined by a precise formula. 

Section 11(d) further provided that if the BGP were terminated

prior to the end of a fiscal year and  4(a)'s stock sale

compensation provision were triggered within a year of that

termination, Participants would be entitled to compensation as

specified.  Kutsch designated Wolfe as a BGP Participant for the

fiscal year 1992, and on June 12, 1992, Wolfe executed an Accession

Agreement in accordance with the terms of the BGP.  Wolfe never

signed an Accession Agreement for the fiscal year 1993.

         On July 31, 1993, Kutsch sold 51 percent of Catex's

outstanding stock, all of which he owned, to Vitol Holding SARL. 

Prior to the closing and to facilitate the deal, on July 29, 1993,

Wolfe signed a Release and Waiver in which Kutsch agreed to forgive

a $25,000 balance on a personal loan, and Wolfe "irrevocably

release[d] and discharge[d] each of the Company, Kutsch and Vitol

from any and all liability of whatever description under or in

connection with the [BGP]."  In the Release, Wolfe acknowledged

that he had reviewed acquisition documents which provided for a

$1,000,000 payment to Kutsch, $75,000 of which was intended to be

divided among the three former BGP Participants.  Paragraph 1(e) of

the Release provided:

                      The Acquisition does not constitute a

           Stock Sale (as defined in the [BGP]) or

           any other event or type of transaction

           contemplated by the [BGP] to require any

           payment to Participants.  Moreover,

           neither the undersigned nor any other

           person has been designated as a

           Participant under the Plan for the

           Company's fiscal year ending December 31,

           1993.  Nevertheless, Kutsch and the

           Company have determined to treat the

           [$75,000] as if it were being paid

           pursuant to the [BGP] and have undertaken

           in negotiating the [Acquisition] to ensure

           continuation after the Acquisition of the

           Company's informal discretionary bonus

           program for key employees in a manner

           consistent with the company's past

           practice.



In addition to signing this Release and Waiver, Wolfe initialed

paragraph 1(e).  He consulted an attorney before executing this

Release.

         At a CVG Board of Directors Meeting on December 9, 1993,

the four attendees, one of whom was Kutsch, discussed a

Bonus/Incentive Plan (BIP) for 1994.  The proposed program,

outlined in a short memo for the meeting, involved a cash component

linked to CVG's income, a deferred component vesting over four

years and a stock component allowing Kutsch to grant CVG employees

options to purchase his stock in the company.  The minutes of this

meeting indicate that the Board of Directors believed that these

proposals would create an incentive for "key senior employees" to

stay with the company.  The Board apparently "agreed" to the bonus

terms as outlined in the proposal memorandum.  Nothing in the

record indicates whether CVG actually implemented the BIP or any of

its several components.

         Wolfe claims that in February or March 1994, Kutsch

approached him about devoting more of his time to developing new

business.  In return, according to Wolfe, Kutsch promised Wolfe a

new method of compensation.  Wolfe alleges that he and Kutsch

entered into an oral agreement, which changed Wolfe's bonus package

by adding a "profit center" component, a "new bonus" concept and a

vested ownership interest.  These elements, according to Wolfe's

description, roughly correspond to the three component parts of the

BIP.  This agreement also allegedly made parts of Wolfe's annual

bonus mandatory rather than discretionary.  Wolfe claims that, in

reliance on this oral contract, he largely abandoned the client

base he had spent three years developing in order to concentrate on

bringing in new business for CVG.

         On March 28, 1994, CVG fired Wolfe without cause.  This

termination was governed by  7(c) of Wolfe's original employment

contract which mandated that CVG pay Wolfe thirty days' base salary

as severance pay.  CVG paid Wolfe ninety days' severance and

offered to determine at the end of fiscal year 1994 whether Wolfe

should receive a bonus for the three months of work before his

termination.  Although his written contract did not so require, CVG

eventually granted such a bonus to Wolfe.

         Apparently anticipating Wolfe's dissatisfaction with this

severance package, CVG filed a declaratory judgment action in

Massachusetts state court seeking a determination that it did not

owe Wolfe anything more.  Citing diversity of citizenship, 28

U.S.C.  1332, Wolfe removed the case to federal court and counter-

claimed against CVG and Kutsch.  Wolfe first alleged that CVG had

breached a contract by failing to pay him the additional

compensation Kutsch had orally promised.  Wolfe also stated a claim

sounding in fraud related to the Release and Waiver, contending

that Kutsch had misrepresented the value of the acquisition and

fraudulently induced Wolfe to abandon his stock rights under the

BGP.   CVG moved for summary judgment on both its original action

and Wolfe's counter-claims.  In an order dated June 27, 1997, the

district court granted CVG's motion with respect to Wolfe's breach

count.  The court held that it could not enforce an oral

modification of a fully-integrated, written employment contract. 

The court allowed discovery into Wolfe's fraud allegation.  About

a year later, in an order dated June 10, 1998, the district court

granted the remainder of CVG's motion for summary judgment.  It

found that Wolfe could have suffered no injury from the alleged

fraud because, under the BGP and pursuant to the Release, he owned

no stock rights.  Wolfe appeals both orders.

                               II.

         We review an order of summary judgment de novo, employing

the same standards as the district court and viewing all facts in

the light most favorable to the non-moving party.  See, e.g.,

Hinchey v. Nynex Corp., 144 F.3d 134, 140 (1st Cir. 1998).  To

survive a summary judgment motion, the non-moving party must

produce sufficient evidence to raise a genuine issue of material

fact.  See Fed. R. Civ. P. 56(e).

         A.  Enforcement of the Oral Modification

         Wolfe first challenges the district court's refusal to

enforce the alleged oral modifications of his employment contract. 

He asserts, in sum, that CVG owes him money pursuant to his

agreement with Kutsch, which involved a profit center, a new bonus

structure and a vested ownership interest.  The district court

looked to the four corners of the contract, several provisions of

which, it found, precluded enforcement of the alleged promises for

additional pay.  Section 7.5, for example, provides that if Wolfe

were terminated without cause (as defined in  7.2(c)) after the

Initial Employment Period, as he was, then CVG owed him only thirty

days' base salary (it paid him ninety days') and any other 

compensation expressly included in the written contract.  The

district court found no evidence that Wolfe's alleged bonuses had

been incorporated in writing in the contract.  Further,  3

provided that all forms of compensation other than base salary were

at the sole discretion of the Board of Directors.  Similarly,

because none of the other alleged modifications was in writing, and

 11 of the contract expressly required modifications to be in

writing, the district court refused to enforce them.  Wolfe now

calls the district court's strict reliance on the language of the

employment contract an "unfounded legal fiction."  Appellant's Br.

at 25; see also Appellant's Reply Br. at 2.  

         Under the principles of Erie R.R. Co. v. Tompkins, 304

U.S. 64, 78 (1938), Texas law supplies the substantive framework

for determining whether the district court's approach was as

fanciful as Wolfe claims.  As a federal court sitting in

diversity, it is, of course, our task to interpret and apply as

best we can the state rules of decision.  See, e.g., Blinzler v. 

Marriott Int'l, Inc., 81 F.3d 1148, 1151 (1st Cir. 1996).  Relying

on pronouncements of the state supreme court and, if these are not

conclusive, on other instructive sources, ultimately "our task is

to ascertain the rule the state court would most likely follow

under the circumstances, even if our independent judgment on the

question might differ."  Id.  So guided, we beat our way through

the thicket of Texas contract law to determine the validity of

Wolfe's charge.

         Wolfe would plunge us deep into this briar patch by

raising various complicated issues of contract interpretation.  He

would lead us close to cases limiting the significance of

integration clauses and canceling the strictures of the Statute of

Frauds.  But we cannot be waylaid by such thorny issues; there is

a clearer path, and, although we could pick our way over Wolfe's

obstacle course, we take the safer route.

         Thus, the alleged oral modifications are unenforceable

because they are not sufficiently definite to supply the terms of 

a valid contract.  The terms of an alleged oral modification to an

employment contract must be definite enough to allow a court to

know what it is being asked to enforce.  See, e.g., Montgomery

County Hosp. Dist. v. Brown, 965 S.W.2d 501, 502 (Tex. 1998);

Hathaway v. General Mills, Inc., 711 S.W.2d 227, 228-29 (Tex.

1986); Botello v. Misener-Collins Co., Ltd., 469 S.W.2d 793, 795

(Tex. 1971).  "General statements" and "[g]eneral comments" will

not do; an employee "cannot construct [a formal agreement] out of

indefinite comments, encouragements, or assurances."  Montgomery

County, 965 S.W.2d at 502.  "In order to be legally binding, a

contract must be sufficiently definite in its terms so that a court

can understand what the promisor undertook."  T.O. Stanley Boot

Co., Inc. v. Bank of El Paso, 847 S.W.2d 218, 221 (Tex. 1992).

         Here, the district court's characterization of Wolfe's

breach claim as "convoluted" is a masterpiece of understatement.

Even giving all reasonable inferences to Wolfe, as we must do on

summary judgment, the terms of the alleged oral modification are so 

indefinite and uncertain that Wolfe himself was unable to

articulate exactly what he was owed and under what formula the

extent of the deficit could be calculated.  His deposition

testimony is telling.  CVG questioned Wolfe about the basis for

his claim that he was owed bonus compensation:

                      Q.  Your claim for bonus, is that related to this

             written employment agreement?

                      A.  Yes.

                      Q.  Is your claim for a bonus related to any other

             agreement?

                      A.  The agreement we talked about the profit center

             agreement.

                      Q.  Anything other than that?

                      A.  Not under claim for bonus, no.

                      Q.  And then you say there's a profit center agreement. 

             Is that separate from the bonus?

                      A.  No.  That's the same type program. . . .when

             Mr. Kutsch asked me to go out and seek a lot of new

             business on behalf of the company, he never

             predicated my payment of bonus based upon the total

             earnings of the corporation.  I was told I would be

             paid based on my contribution to the company. . . .



App. 125-26.  Wolfe's deposition testimony regarding his

understanding of the new bonus component was in the same vein:

                      A.  That particular program was an additional incentive

             compensation program very similar to the program in

             place at Vitol.  It was fashioned after the Vitol

             plan, which effectively was a vesting program.  For

             example, if my proportionate share of earnings

             amounted to $100,000 over and above my participation

             in the bonus plan, that $100,000 would be put into

             [sic] my name in the vested program, of which I

             would receive 25 percent in four annual

             installments, and that would also be terminated at

             any time if I left the company.  I would be -- there

             would always be three years' payments that I would

             never recover if I ever left.  So in effect over a

             period of time -- let's say if you had four years in

             a row, I mean, there could be sizeable sums of money

             built up in a deferred account that if you ever left

             the company you would walk away from.  The effect of

             the program, to my understanding, was to make sure

             that the employees had significant incentive not to

             leave the company.

                      Q.  How would it be determined how much money any one

             person would be entitled to under that?

                      A.  I don't recall specifically the allocation

             procedures.  I believe it was 10 percent of the net

             income.  10 to 20 percent of the net income of the

             company was allocated to this type of program.  This

             is in addition to other bonus programs.

                      Q.  This is apart from the bonus concept?

                      A.  That's correct.

                      Q.  Under this program, as you think you understand it,

             when would the first payment have been made if you

             had remained with Catex?

                      A.  I believe the first payment would be due at the end

             of 1994.

                      Q.  And can you tell me again, as best you can, how that

             payment would be determined?

                      A.  I don't recall specifically.  I think I gave you an

             adequate explanation.



App. 129-30.  The questioning continued, and Wolfe was unable to be

any more precise about the specifics of the contract he was seeking

to enforce.

         The documents are similarly devoid of detail.  The

memorandum -- entitled a "Proposed ... Plan" -- simply outlined

scales.  For example, 25 percent of the deferred component (what

Wolfe calls the new bonus) would vest each year for four years from

the grant.  The minutes from the Board of Directors meeting at

which the BIP was discussed indicate only that the Board "agreed"

to the proposed scale as a means of creating an incentive for

certain employees.  Nothing in any document specifies what would be

paid to whom and when it would be paid.  More, there is no

evidence to suggest that CVG took any steps to provide for the

implementation of any of the components of the BIP outlined in the

memorandum.  The briefs and filings below are also less than

illuminating. 

         In order to enforce the oral modifications, Wolfe asks us

to fill in critical details.  We would have to decide, for example,

what percentage of CVG's net income between 10 and 20 percent would

be allocated to the bonus program and, based on his "contribution

to the company," what part of that allotment CVG owed Wolfe.  This

we cannot do.  In the end, all of the sources which might flesh out

the terms of his alleged oral contract -- Wolfe's recollection of

the specifics of his agreement with Kutsch, the BIP memo, minutes

from Board of Directors meetings, etc. -- provide nothing more than

general and indefinite comments.  Wolfe cannot forge a contract out

of such hazy materials.  See, e.g., Montgomery County, 965 S.W.2d

at 502; Hathaway, 711 S.W.2d at 228-29.  Accordingly, the oral

modifications are unenforceable.  We therefore affirm the district

court's order of summary judgment in favor of Kutsch and CVG and

against Wolfe on Wolfe's breach counter-claim.



         B.  Fraud in the Sale of Stock Rights

         We also affirm the grant of summary judgment against

Wolfe on Wolfe's fraud counter-claim.  Wolfe alleges that Kutsch

fraudulently represented that Kutsch's sale of 51 percent of his

stock in the company would yield only $1 million when it in fact

resulted in Kutsch's receiving more than $10 million.  Wolfe claims

that, in reliance on these false representations and under pressure

from Kutsch, he executed the Release and Waiver. In so doing he

allegedly relinquished his 2.5 percent stock interest in CVG for

substantially less than its true value.  The district court

examined the language of the BGP and Release and concluded that

neither vested any ownership interest in Wolfe.  It therefore held

that, even if Kutsch had fraudulently misrepresented the value of

the sale, Wolfe would be unable to show that he was injured -- he

had no stock rights to relinquish -- and summary judgment was in

order.

         We agree with the district court.  In order to prove

actionable fraud, Wolfe must be able to show that Kutsch's conduct

caused him some harm.  If Wolfe did not own rights to stock in the

first instance, Kutsch's representations about the value of the

merger, whether fraudulent or not, could not have injured him. 

There is no fraud in being induced to relinquish something you do

not have.  See, e.g., Powers v. Boston Cooper Corp., 926 F.2d 109,

111 (1st Cir. 1991).  

         Wolfe forfeited nothing.  None of the documents purports

to directly vest in Wolfe an ownership interest in the company. 

Indeed, to the contrary, all of the evidence suggests that Wolfe

never owned any stock in Catamount or its successors.  Wolfe's

original employment contract does not provide for an ownership

interest, and the first section of the BGP expressly states that

its purpose was to create a financial incentive for participants

"without transferring to [the participants] ownership of any

capital stock of the Company."  (emphasis added).  Section 2(a) is

also unambiguous:  "No ownership of any capital stock of the

Company will be transferred or otherwise granted to any employee of

the Company as a result of the designation or participation of such

employee as a Participant."

         As before, Wolfe is not discouraged by the clear, written

language of documents he signed; he forges ahead, offering 

numerous reasons why we should ignore this language.  Only one

such reason merits our attention.  Wolfe argues that  11(d)of the

BGP created "tail rights" which endured into 1993 and resulted in 

his acquiring stock rights.  This argument suffers from many flaws. 

Section 11(d) provided that, if the BGP were terminated prior to

the end of a fiscal year and the stock sale compensation provision

of  4(a) were triggered within a year of that termination, then

former BGP participants would be entitled to compensation as if the 

BGP were still active.  The BGP, however, was not terminated prior

to the end of a fiscal year; rather, it simply expired after only

one year on December 31, 1992.  Kutsch never renewed the plan; he

never designated Participants for fiscal year 1993; and Wolfe (as

well as all the other former participants) never executed an

accession agreement for 1993.  Moreover,  4(a) requires that "all

of the outstanding Common Stock of the Company [be sold] in a

single transaction."  It is undisputed that Kutsch sold only 51

percent of his stock in the company.  Thus, Wolfe's reliance on

 11(d) is to no avail.

                               III.

         For the foregoing reasons, we AFFIRM the district court's

grant of summary judgment to CVG and Kutsch both on their claims

and on Wolfe's counter-claims.