Dahua Technology USA, Inc. v. Zhang

138 F.4th 1

• Court: Court of Appeals for the First Circuit
• Decided: May 12, 2025
• Docket: 24-1350
• Status: Published

Opinion

United States Court of Appeals For the First Circuit

No. 24-1350

DAHUA TECHNOLOGY USA, INC., Plaintiff, Appellant,

v.

FENG ZHANG, Defendant, Appellee.

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Indira Talwani, U.S. District Judge]

Before

Rikelman, Lynch, and Aframe, Circuit Judges.

Daron L. Janis, with whom Daryl J. Lapp and Locke Lord LLP were on brief, for appellant. Benjamin Flam, with whom Philip J. Gordon and Gordon Law Group LLP were on brief, for appellee. Jeffrey M. Lipshaw, Suffolk University Law School, on brief for Contract Law Scholars, amicus curiae.

May 12, 2025 AFRAME, Circuit Judge. This is the second appeal in a

protracted contract dispute between Dahua Technology USA, Inc.

("Dahua") and Feng "Frank" Zhang, a former Dahua executive. See

Dahua Tech. USA, Inc. v. Zhang, 988 F.3d 531, 539-40 (1st Cir.

2021). Zhang alleges that Dahua breached its obligation to pay

him severance of $680,000 per month for sixteen months. Dahua

maintains that the parties only intended Zhang to receive a total

severance of $680,000, paid in sixteen monthly installments.

Dahua sued under diversity jurisdiction and asserted

claims for reformation of the relevant contract and breach of the

implied covenant of good faith and fair dealing. Zhang

counterclaimed for breach of contract. After this Court vacated

a grant of summary judgment in Dahua's favor, the parties proceeded

to an eleven-day bench trial on whether unilateral or mutual

mistake infected the severance provision at issue. Ultimately,

the district court concluded that the severance provision

contained a mistake that could not be fixed under Massachusetts

law and therefore must be enforced "as written." Dahua Tech. USA,

Inc. v. Zhang, No. 1:18-CV-11147-IT, 2024 WL 1075066, at *1

(D. Mass. Mar. 12, 2024). The district court accordingly entered

judgment for Zhang in the amount of $10,200,000, plus prejudgment

interest. Dahua appeals. Because we conclude that the inartfully

drafted severance provision is ambiguous, we vacate the judgment

- 2 - and remand for this dispute to be resolved consistent with

extrinsic evidence of the parties' intent.

BACKGROUND

We begin by summarizing "the relevant facts as found by

the district court . . . consistent with record support." Nevor

v. Moneypenny Holdings, LLC, 842 F.3d 113, 116 (1st Cir. 2016).

Dahua is a United States subsidiary of Zhejiang Dahua

Technology Co., Ltd. ("Zhejiang"), a publicly listed Chinese

surveillance technology company based in Hangzhou, China. Dahua

maintains corporate offices in Waltham, Massachusetts. In January

2016, Zhang assumed an executive role at Dahua as its Chief

Strategy Officer, Vice President, and President of North American

and Enterprise Sales.

Zhang's employment terms were set forth in a single-page

agreement dated November 5, 2015 (the "2015 Employment

Agreement"). Zhang was to receive a one-time grant of Dahua common

stock and an annual base salary of $510,000 for a three-year

employment term. The 2015 Employment Agreement provided that

Zhang's annual base salary was "conditionally guaranteed," meaning

that it remained payable in full even if the company terminated

Zhang for cause.1

1 The 2015 Employment Agreement contained a carveout in the event of a termination for "illegal conduct or company misconduct," in which case Zhang was to "be compensated for the

- 3 - In mid-2017, Zhejiang's Board of Directors decided to

remove Zhang from the day-to-day management of its North American

business. Zhejiang's leadership, headed by founder and chairman

Liquan Fu, strategized with Zhejiang's outside and in-house

counsel on how best to minimize the risks presented by Zhang's

early removal.

These discussions centered on two primary concerns.

First, Zhejiang's lawyers understood the company's potential

exposure for terminating the 2015 Employment Agreement, which they

believed could include not just the value of Zhang's remaining

conditionally guaranteed base salary, but also damages arising

from the loss of various benefits and a guaranteed employment

period. Second, counsel flagged that the 2015 Employment Agreement

did not contain any restrictive covenants to prevent a potentially

disgruntled Zhang from publicizing certain security

vulnerabilities that the company had concealed -- a risk

heightened by Zhang's role in driving the company's negotiation of

an important strategic acquisition.

Ultimately, Zhejiang's lawyers counseled that mitigating

these concerns would require providing Zhang a "[b]aseline . . .

severance package" that included (1) compensation for the salary,

bonus, and other benefits due to Zhang through the end of his

duration of [his] employment and not receive any additional compensation."

- 4 - three-year employment term; and (2) "[a]dditional compensation to

entice [Zhang] to release all claims against Dahua."

In late August 2017, Fu traveled to Massachusetts to

negotiate with Zhang the conditions for Zhang's removal from his

executive role. Fu was accompanied by several members of the

Zhejiang team, including Zhejiang's in-house counsel Haiyan Yue.

Fu revealed the purpose for his visit to Zhang on the drive from

the airport to his hotel when he told Zhang that he was

"considering asking . . . young guys to run the business."

Fu and Zhang continued their discussion the next day at

Fu's hotel. Fu told Zhang that he wanted Zhang to move to a

different role within Zhejiang and offered Zhang a "senior

management" position at Zhejiang's headquarters in China. When

Zhang declined, citing concerns about disrupting his children's

education, Fu instead offered Zhang a senior company advisor role

in the United States. Zhang indicated his interest in that

position but wanted to know first how the company intended to

resolve the remaining terms of his 2015 Employment Agreement. When

Fu advised that the company would "follow whatever the [2015

Employment Agreement] says," Zhang responded: "If [you] can take

care of the agreement, I'm ok." Zhang then asked Fu what he would

be asked to sign to effectuate the change, and Fu said that the

company would "make sure [Zhang was] comfortable [and] treat [him]

well."

- 5 - Following this conversation, Fu stepped away to make a

phone call. When Fu returned, he told Zhang that they were "all

set." Attorney Yue subsequently emailed Dahua's outside counsel,

writing: "It’s been decided: [Zhang] will serve as a consultant.

Dahua will pay him the remaining 16[-] month salary plus a monthly

consulting fee. The consulting period is 2 years."

At Dahua's Waltham office later that day, Attorney Yue

presented Zhang and Fu with drafts of a separation agreement and

a consulting agreement. Under the terms of the proposed

agreements, Zhang's employment with Zhejiang would terminate and

he would be re-engaged by Dahua as an outside consultant, paid

hourly for ad hoc projects on an at-will basis. The agreements

did not provide any compensation for Zhang's remaining

entitlements under the 2015 Employment Agreement. Zhang declined

to sign the agreements on the ground that the proposed terms were

"not what [he had] discussed" with Fu earlier that morning,

reminding Attorney Yue that Fu had said the company would "treat

[him] well."

After further internal discussions, Zhejiang's attorneys

prepared two new letter agreements for Zhang's consideration. The

first was a release agreement (the "Release Agreement"). The

second was a new employment agreement (the "2017 Employment

Agreement" and, together with the Release Agreement, the "2017

Agreement").

- 6 - The Release Agreement purports to "memorialize[] the

terms . . . agreed to with respect to the termination of [the 2015

Employment Agreement]" and includes, inter alia, a general release

of claims, a non-competition clause, a confidentiality clause, and

a mutual non-disparagement clause. In exchange for executing the

contract and complying with its terms, Zhang was to receive

severance under the following provision:

Payments. In consideration for your execution, non-revocation and compliance with this Agreement, the Company agrees to make monthly severance payments to you in the amount of $680,000 for sixteen (16) months following the offer termination [d]ate (the "Severance Period"), payable subject to standard payroll deductions and withholdings on the Company's ordinary payroll dates over the Severance Period. . . .

The 2017 Employment Agreement sets forth the terms of

Zhang's "new position" as a Dahua "Senior Corporate Advisor." In

this role, Zhang was to "participat[e] in forward looking projects

but [] not be involved in the day-to-day business operations of

[Dahua]." The contract provides that Zhang would receive his new

Senior Corporate Advisor salary "at the rate of $10,000 bi-weekly,

which equates to $240,000 on an annualized basis."

Attorney Yue presented the Release Agreement and 2017

Employment Agreement together for Zhang and Fu's consideration.

After about ten to fifteen minutes, Zhang and Fu signed both

contracts without further discussion.

- 7 - Zhang's employment as a senior corporate advisor to

Dahua commenced on August 29, 2017. In the following months, Dahua

continued to pay Zhang in monthly amounts consistent with his

annual base salary under the 2015 Employment Agreement (i.e., at

the rate of $510,000 per year), as well as his new salary under

the 2017 Employment Agreement (i.e., at the rate of $240,000 per

year). On January 10, 2018, Zhang received an email from Dahua's

human resources department informing him of his immediate

termination. Attached to the email was a new separation and

release agreement that the company asked Zhang to review and sign.

The contract, if executed, would have superseded the 2017 Agreement

and entitled Zhang to "severance payments . . . in the amount of

$910,000."

Zhang refused to sign the new agreement and instead

requested "acceleration of the agreed to severance amount" set

forth in the Release Agreement. Zhang's lawyers followed with a

formal demand letter asserting that, under the 2017 Agreement,

Dahua was "already contractually obligated to pay Mr. Zhang over

$11,000,000." Zhejiang's counsel responded that she had "just

learned" of a "scrivener's error in the Release Agreement," the

apparent effect of which gave Zhang "a monthly severance payment

of $680,000 for 16 months, rather than what the parties intended,

which was [for Zhang to receive] a monthly severance payment of

$42,000 for 16 months, totaling $680,000." Dahua requested that

- 8 - Zhang execute a proposed amendment to the Release Agreement "[t]o

correct [the] scrivener's error." When Zhang refused, Dahua

initiated the instant litigation.

THE LITIGATION

Dahua brought this diversity action asking the district

court to declare the Release Agreement "unenforceable" on the

grounds that the severance provision "contains a scrivener's error

that results from [a] mutual mistake of the parties." Dahua sought

reformation of the severance provision "to reflect the intent of

the parties" by providing for "monthly severance payments to

[Zhang] in the amount of $42,500 for the 16-month period following

August 28, 2017, totaling $680,000." Dahua also alleged that Zhang

breached the implied covenant of good faith and fair dealing by

"maintaining that the [Release Agreement] as-written reflects the

intent of the parties." For his part, Zhang counterclaimed for

breach of contract based on Dahua's "refus[al] to pay [him] in

accordance with the terms of [the Release Agreement]."

The parties filed cross-motions for summary judgment.

The district court initially granted judgment for Dahua on all

counts, finding no genuine dispute of material fact that "a

unilateral, if not mutual, mistake permeated the [Release

Agreement]," and ordered reformation of the contract per Dahua's

request. Dahua Tech. USA, Inc. v. Zhang, 433 F. Supp. 3d 41, 47

(D. Mass. 2020). The court also entered judgment for Dahua on its

- 9 - claim against Zhang for breach of the implied covenant of good

faith and fair dealing. Id. Zhang appealed and this Court held,

inter alia, that the district court erred in granting summary

judgment to Dahua because there were several disputed issues of

material fact relating to the viability of any mistake defense.

Dahua Tech., 988 F.3d at 539-40.

On remand, the case was assigned to a different judge,

and the parties proceeded to a bench trial to resolve the core

factual disputes identified by this Court. See id. The parties

agreed that the district court should focus on the following three

factual questions:

1. Whether at the time of signing the Severance Agreement, Fu believed that he was offering $680,000 per month for sixteen (16) months or $680,000 total over a span of sixteen (16) months as a term of the Severance Agreement.

2. Whether at the time of signing the Severance Agreement, Zhang believed that Fu was offering $680,000 per month for sixteen (16) months or $680,000 total over a span of sixteen (16) months as a term of the Severance Agreement.

3. If . . . Dahua made a drafting mistake, whether Zhang knew or had reason to know of that mistake at the time he executed the Severance Agreement.

After the trial, the district court answered these

questions in Dahua's favor. See Dahua Tech. USA, Inc. v. Zhang,

No. 1:18-cv-11147-IT, 2022 WL 12370835, at *13-14 (D. Mass. Oct.

- 10 - 21, 2022). Nevertheless, these answers did not deliver Dahua the

relief it sought because the court concluded that, under

Massachusetts law, it could not reform or rescind the Release

Agreement on grounds of unilateral or mutual mistake. Id. at *12,

15-16.

The district court's factual determinations as to the

parties' misimpressions regarding the amount of the severance

payment did not factor into its reformation analysis, which focused

instead on whether Dahua had clearly demonstrated that the parties

had reached a prior, express agreement "to which the Release

Agreement [could] be reformed." Id. at *11. The court found that,

prior to the moment when Zhang and Fu signed the final version of

the 2017 Agreement, the parties had agreed only that Zhang "would

give up" his executive-level position "and would instead serve as

a senior corporate advisor" -- a role for which "he would be paid

an additional $240,000 per year for two years while [he continued]

to receive the salary and benefits for the remaining sixteen months

of the [2015 Employment Agreement]." Id. The court held that Fu

and Zhang's alignment on just these terms could not provide the

basis for reforming the severance provision under Massachusetts

law where the parties "did not discuss terminating Zhang's

employment with Zhejiang and did not discuss a Release Agreement

at all." Id.; see Sancta Maria Hosp. v. City of Cambridge, 341

N.E.2d 674, 681 (Mass. 1976) (holding that a court should "not

- 11 - decree a reformation unless [it is] convinced that the parties

expressed agreement and an intention to be bound in accordance

with the terms that [it is] asked to establish and enforce").2

In the alternative, the district court considered

whether Dahua could obtain rescission of the Release Agreement

because of either mutual or unilateral mistake -- a remedy which,

unlike reformation, does not require the parties to have reached

a prior agreement. Dahua Tech., 2022 WL 12370835, at *13-16; see

LaFleur v. C.C. Pierce Co., 496 N.E.2d 827, 830-31 (Mass. 1986).

The court concluded that Dahua's claims of mistake were supported

by, inter alia, its lawyers' contemporaneous internal

communications and "[t]he discrepancy between

$10,880,000" -- i.e., the amount of severance allegedly required

by the Release Agreement's plain terms -- "and the initial zero

dollar offer" in the first draft agreement that Attorney Yue gave

to Zhang. Dahua Tech., 2022 WL 12370835, at *14. The court

reasoned that this discrepancy should have alerted Zhang to Dahua's

mistake because he should have known, based on "his own prior

experience dealing with Fu and Zhejiang," that Zhejiang would not

jump to offer almost $11 million in severance when it started by

offering nothing. Id.

2 In the first appeal, Zhang challenged the district court's application of Massachusetts law to the Release Agreement. Dahua Tech., 988 F.3d at 537-58. We affirmed the district court's determination that Massachusetts law governs. Id. at 538.

- 12 - The district court thus held that Dahua had established

both that "it made a mistake when setting forth the severance

payment as $680,000 per month for sixteen months rather than

$680,000 payable over sixteen months," and that "the mistake was

mutual or that Zhang had reason to know of the mistake." Id. at

*14. Ultimately, however, the court concluded that the parties'

mistakes could not insulate Dahua from liability on Zhang's breach

of contract claim because Dahua, having "drafted the Release

Agreement with a full panoply of lawyers," bore the risk of

mistake.3 Id. at *15; see Restatement (Second) of Contracts § 152

(Am. L. Inst. 1981) ("Where a mistake of both parties at the time

a contract was made as to a basic assumption on which the contract

was made has a material effect on the agreed exchange of

performances, the contract is voidable by the adversely affected

party unless he bears the risk of the mistake . . . ."). The court

also reasoned that the equities supported denying rescission

because voiding the severance provision would effectively deny

Zhang compensation for agreeing to new restrictive covenants from

which Dahua had already received the benefit of Zhang's compliance,

3 In reaching this conclusion, the court also highlighted evidence that Dahua had selectively withheld specific dollar amounts from the lawyers tasked with preparing the Release Agreement until the eleventh hour, and that Fu had approved and signed the agreement even though Fu could not "read or understand" English, the language used in the Release Agreement. Dahua Tech., 2022 WL 12370835, at *15.

- 13 - i.e., Zhang's silence during the company's strategic acquisition

negotiations, supra at 4. Dahua Tech., 2022 WL 12370835, at *16.

The district court accordingly entered judgment against

Dahua on its claims for reformation and breach of the implied

covenant of good faith and fair dealing. Id. at *16. The court,

however, stopped short of entering judgment for Zhang on his breach

of contract counterclaim and instead solicited additional briefing

from the parties on the following question:

Having found that there was no oral agreement in 2017 prior to the signed documents, that the parties were mutually mistaken as to the severance term in the Release Agreement [or, at a minimum, . . . that Zhang knew or should have known that Dahua did not intend for the Release Agreement to provide severance in the amount of $680,000 per month for sixteen months, but that Dahua's defense fails because Dahua bore the risk of such mistake], does the court have authority to fashion an appropriate remedy as a matter of equity or must the court enforce the agreement as written as a matter of law?

Id. at *16 & n.15 (bracketed language from footnote).

Dahua's initial response proposed a handful of equitable

remedies that the district court could apply to avoid an outcome

resulting in "an unintended $10 million windfall" to Zhang, such

as implying a quasi-contract to provide for a total severance

amount of $680,000. Dahua then followed with another filing

suggesting the court could "avoid the necessity of reforming the

writing by viewing the issue as one of interpretation."

- 14 - The district court rejected Dahua's contract

interpretation argument on waiver grounds and on the merits. Dahua

Tech., 2024 WL 1075066, at *4. The court also found Dahua's other

proposed equitable solutions unpersuasive and accordingly

concluded that there was no basis for "overrid[ing]" the severance

provision as written. Id. at *5-6. Finally, having held that

"the terms of the Release Agreement control, including the

severance provision in its entirety," id. at *7, the court entered

judgment against Dahua on Zhang's breach of contract claim in the

amount of $10,200,000.00, with prejudgment interest of

$6,753,787.88, for a total award of $16,953,787.88. This second

appeal followed.

On appeal, Dahua presents several challenges to the

district court's rulings. We focus on only one: Dahua's argument

that the district court incorrectly concluded that the Release

Agreement's severance provision unambiguously promised Zhang

payments of $680,000 each month for sixteen months. In our view,

the Release Agreement made no such unambiguous promise.

ANALYSIS

Though the parties have framed much of this litigation

around Dahua's claim for reformation of the Release Agreement's

severance provision, it is Dahua's contract interpretation

argument that presents the logical starting point for our

analysis. After all, the court's judgment against Dahua hinges

- 15 - on its view that the Release Agreement, as written, unambiguously

requires Dahua to pay Zhang $10.2 million in severance. If Dahua

is correct that the Release Agreement is unclear, then the court

must construe the meaning of the severance provision in accord

with extrinsic evidence of the parties' intent. In that scenario,

the severance provision would be interpreted by considering

evidence of the surrounding circumstances, making it unnecessary

to analyze the availability of equitable tools (e.g., reformation

or rescission) to rewrite or void the contract.4

We thus consider the merits of Dahua's contention that

the Release Agreement is ambiguous as a matter of law, and that

the district court should have considered extrinsic evidence to

determine the severance provision's meaning. Before doing so,

however, we must first address Zhang's contention that Dahua has

waived this argument altogether.

A. Waiver

As noted above, the district court initially reserved

judgment on Zhang's breach of contract counterclaim pending

additional briefing on whether, given its factual findings, the

4 While "reformation and interpretation have much in common," Arthur Corbin et al., 5 Corbin on Contracts § 24.2 (2025), they are mutually exclusive in their application. Interpretation requires the court to "determine the meaning of [the] existing words" of a written agreement; reformation, by contrast, asks the court to "alter the words of the document" so that it "express[es] to others the meaning that both parties had intended." Id.

- 16 - court had "authority to fashion an appropriate remedy as a matter

of equity or must . . . enforce the [Release Agreement] as written

as a matter of law." Dahua Tech., 2022 WL 12370835, at *16.

Before the court ruled on these questions, Dahua directed the

court's attention to commentary from the Restatement on the

relationship between reformation and contract interpretation:

In some instances where it might appear that both parties are mistaken with respect to the reduction to writing of a prior agreement, interpretation of the writing will show that the mistake is only apparent and not real. Where, for example, the parties use language in the writing in an unusual way, interpretation of that writing in accord with the meaning attached by the parties will protect their expectations, and reformation is unnecessary. In a borderline case, a court may avoid the necessity of reforming the writing by viewing the issue as one of interpretation.

Restatement (Second) of Contracts § 155 cmt. b.

Dahua invited the district court to apply this

commentary by "us[ing] the rules of contract interpretation and

ambiguity" to resolve the parties' dispute. In making this

argument, Dahua acknowledged that it had "at times . . .

disclaimed asserting ambiguity . . . to refocus the [c]ourt on its

arguments regarding mistake when Zhang conflated mistake with

ambiguity in his briefing," but contended that the proper

interpretation of the Release Agreement was nonetheless an open

issue throughout the litigation. Zhang filed a response objecting

- 17 - to Dahua's "delinquent [ambiguity] argument" on waiver grounds and

on the merits.

In its final ruling, the district court agreed with Zhang

that it was too late for Dahua to claim ambiguity in the Release

Agreement, particularly given that Dahua had disclaimed making

such an argument earlier in the litigation. Dahua Tech., 2024 WL

1075066, at *4. The court nevertheless proceeded to consider the

ambiguity argument on the merits and determined that the severance

provision was unambiguous as a matter of law. Id. Zhang submits

that Dahua's ambiguity claim on appeal fails for these same

reasons.

Ordinarily, "[t]heories not timely raised in the trial

court cannot be raised on appeal." Robb Evans & Assocs., LLC v.

United States, 850 F.3d 24, 36 (1st Cir. 2017). This rule would

ordinarily preclude appellate consideration of a theory raised for

the first time in a post-trial submission. See, e.g., W.R. Cobb

Co. v. V.J. Designs, LLC, 130 F.4th 224, 240 (1st Cir. 2025)

(enforcing waiver of mutual mistake theory where a party failed to

"advance[] such a claim . . . prior to or during the trial

itself"). But even our most stringent waiver rules "admit[] of an

occasional exception." Nat'l Ass'n of Soc. Workers v. Harwood, 69

F.3d 622, 627 (1st Cir. 1995). Here, unique circumstances favor

allowing such an exception.

- 18 - As an initial matter, Dahua's ambiguity claim was fully

briefed before the district court, and the court addressed it on

the merits. This is therefore not a case in which, by neglecting

to timely raise an issue, a party denied its adversary and the

trial court "the opportunity to address and to decide [the] issue[]

in the first instance before an appellate court steps in." Holsum

de P.R., Inc. v. ITW Food Equip. Grp., LLC, 116 F.4th 59, 65 (1st

Cir. 2024). We have observed that the concerns generally animating

our strict enforcement of waiver rules -- namely, considerations

of fairness and judicial economy -- carry less weight under such

circumstances. See id. at 66 (noting that the fact that a district

court has "address[ed] an argument, even one that a party has not

presented squarely, . . . undermines the justifications for

enforcing what might otherwise be a party's waiver"); see also id.

(declining to enforce plaintiff's waiver of an argument raised for

the first time in a surreply to a defendant's motion for attorneys'

fees "because the district court reached and decided the issue").

Here, however, we must also consider whether we can look

past the inconsistency between Dahua's current assertion of

ambiguity and its initial position that it was not advancing such

an argument. Ordinarily, we would hold a party to the consequences

of its decision to press one theory to the exclusion of another.

See Genereux v. Raytheon Co., 754 F.3d 51, 59 (1st Cir. 2014)

("[W]hen a litigant commits to a theory of the case and sticks to

- 19 - that theory past the point of no return, he cannot thereafter

switch to a different theory simply because it seems more

attractive at the time."). We decline to do so here for three

First, Dahua raised its ambiguity claim after the

district court specifically asked the parties for briefing on

whether it could "fashion an appropriate remedy as a matter of

equity" or was instead required to "enforce the [Release Agreement]

as written as a matter of law." Implicit in the court's request

was an invitation to offer arguments on whether the court could

award Zhang an amount of severance different from $680,000 per

month. By explaining that the court could "use the rules of

contract interpretation . . . as a different lens to view the

parties' dispute over whether the inapt writing accurately

expresses their mutual intent," Dahua provided a responsive

argument. In these circumstances, we think it appropriate to

excuse Dahua from its earlier statements framing the relevant issue

as one of mistake, especially where the pertinent Restatement

provision regarding reformation recognizes that mistake and

ambiguity are often closely connected. See Restatement (Second)

of Contracts § 155 cmt. b; see also 5 Corbin on Contracts § 24.2

(observing that "reformation and interpretation have much in

common" and that "the line between interpretation and reformation

is not always bright and easy to find").

- 20 - Second, and more importantly, the meaning of the

contested language in the severance provision is an unavoidable

issue for any appellate decision resolving this dispute. For

example, to review the ruling against Dahua on its reformation

claim, we would need to consider whether the district court

correctly concluded that the language of the severance provision

failed to "express the agreement as originally intended" by the

parties. OneBeacon Am. Ins. Co. v. Travelers Indem. Co. of Il.,

465 F.3d 38, 42 (1st Cir. 2006). Likewise, reviewing the judgment

for Zhang on his breach of contract counterclaim requires us to

assess whether the language of the severance provision entitles

Zhang to $10.2 million in severance as a matter of law. See

Fenoglio v. Augat Inc., 254 F.3d 368, 370 (1st Cir. 2001) (noting

that review of challenged award of change-of-control benefits for

executive turned on construction of executive's entitlements under

the relevant contracts).

Given that the resolution of these issues necessarily

depends on how one construes the amount of severance described by

the Release Agreement, we do not think it appropriate to bypass a

challenge to the district court's interpretation of that language

as unambiguous. See CMM Cable Rep, Inc. v. Ocean Coast Props.,

Inc., 97 F.3d 1504, 1524 (1st Cir. 1996) (addressing an argument

not "explicitly raise[d]" below because the issue was

"inextricably intertwined with the issues raised by [the]

- 21 - appeal"); see also Parmenter v. Prudential Ins. Co. of Am., 93

F.4th 13, 22 (1st Cir. 2024) (conducting a "journey into the

meaning of a term" and finding it ambiguous as a matter of law

notwithstanding the parties' mutual agreement that "the language

at issue [was] plain and unambiguous").

Third, we are more inclined to look past a waiver when

the issue belatedly raised presents a question of law. See Nat'l

Ass'n of Soc. Workers, 69 F.3d at 627-28 (recognizing that one

consideration in overlooking a waiver is whether "it can fairly be

said that the . . . issue is purely legal in nature, and lends

itself to satisfactory resolution on the existing record"); see

also Montalvo v. González-Amparo, 587 F.3d 43, 48 (1st Cir. 2009)

(similar). The ambiguity issue raised here is a question of law

arising from a developed record. See Eigerman v. Putman Invest.,

Inc., 877 N.E.2d 1258, 1263 (Mass. 2007) ("The interpretation of

a contract is a question of law for the court.").

For all these reasons, we view this as a rare instance

in which it is appropriate to consider a claim belatedly raised

below. See Nat'l Ass'n of Soc. Workers, 69 F.3d at 628

(recognizing that it should only be the "occasional" case where

the appellate court will overlook a litigant's failure to properly

preserve an issue in the district court). Accordingly, we turn to

the merits of Dahua's ambiguity argument.

- 22 - B. Interpreting the Severance Provision

Our review of Dahua's contract interpretation claim is

governed by a familiar legal framework. To interpret a contract,

a court "must first assess whether the contract is ambiguous,"

Sonoiki v. Harvard Univ., 37 F.4th 691, 703-04 (1st Cir. 2022)

(quoting Farmers Ins. Exch. v. RNK, Inc., 632 F.3d 777, 783 (1st

Cir. 2011)), which, as noted above, is "a question of law decided

de novo by the reviewing court," id. (quoting Helfman v. Ne. Univ.,

149 N.E.3d 758, 777 (Mass. 2020)). Under Massachusetts law, a

contractual provision is ambiguous "where the phraseology can

support [a] reasonable difference of opinion as to the meaning of

the words employed and the obligations undertaken." Mercury Sys.,

Inc. v. S'holder Rep. Servs., LLC, 820 F.3d 46, 51-52 (1st Cir.

2016) (quoting Fashion House, Inc. v. K Mart Corp., 892 F.2d 1076,

1083 (1st Cir. 1989)).

To determine whether a particular contractual term is

ambiguous, a court must "interpret [the at-issue] language in the

context in which it was written and with reference to the objects

sought to be accomplished, mindful that a contract should be

construed [so as] to give it effect as a rational business

instrument and in a manner which will carry out the intent of the

parties." Homeowner's Rehab, Inc. v. Related Corp. V SLP, L.P.,

99 N.E.3d 744, 754 (Mass. 2018) (cleaned up) (citation omitted).

In executing these mandates, courts must avoid "isolating words

- 23 - and interpreting them as though they stood alone," Starr v.

Fordham, 648 N.E.2d 1261, 1269 (Mass. 1995) (citation omitted),

and instead construe the disputed provision considering "the

contract as a whole, 'the circumstances and background of its

negotiation and execution,' and its purpose," Wilmot H. Simonson

Co. v. Green Textiles Assocs., 755 F.2d 217, 220 (1st Cir. 1985)

(quoting E. Coast Aviation Corp. v. Mass. Port Auth., 195 N.E.2d

545, 548 (Mass. 1964)).

Here, the severance provision provides that "the Company

agrees to make monthly severance payments to you in the amount of

$680,000 for sixteen (16) months." Dahua contends that the quoted

language lends itself to two reasonable interpretations: one that

requires sixteen monthly severance payments, each in the amount of

$680,000 (the reading accepted by the district court), and another

that requires a total severance amount of $680,000 paid over

sixteen monthly payments (the reading Dahua asserts to be more

reasonable under the interpretative rules of Massachusetts law).

The district court rejected this argument, reasoning that Dahua's

proposed alternative reading "would require the court to ignore

the word 'monthly' in 'monthly severance provision,'" which would

breach the interpretative canon that a contract should be construed

"so that every word is given effect." Dahua Tech., 2024 WL

1075066, at *4 (quoting DeWolfe v. Hingham Ctr., Ltd., 985 N.E.2d

1187, 1195 (Mass. 2013)). "[F]or [this] reason alone," the court

- 24 - determined that the provision had only one possible interpretation

and declared it unambiguous as a matter of law. Id.

Dahua contends that the district court construed the

Release Agreement too narrowly and that the severance provision,

when viewed in its proper context, plausibly supports either

interpretation. We agree.

To begin, we accept Dahua's unchallenged assertion that

the Release Agreement and the 2017 Employment Agreement "were part

of a single transaction" and thus "are to be treated as an

integrated agreement setting forth the entire understanding

reached by the parties." Wilmot H. Simonson Co., 755 F.2d at 220

(first quoting Chelsea Indus., Inc. v. Florence, 260 N.E.2d 732,

735 (Mass. 1970); then quoting Thomas v. Christensen, 422 N.E.2d

472, 476 (Mass. App. Ct. 1981)). The court accordingly must

"read[] the documents together, rather than construing each as if

it stood alone," Donoghue v. IBC USA (Publ'ns), Inc., 70 F.3d 206,

212 (1st Cir. 1995), keeping in mind "the object[] sought to be

accomplished," Homeowner's Rehab, Inc., 99 N.E.3d at 754.

By its plain language, the parties' agreement was designed

to effectuate an early termination of Zhang's 2015 Employment

Agreement with Zhejiang by hiring him as a Dahua senior corporate

advisor. Compare Release Agreement at 1 ("This letter agreement

[] memorializes the terms . . . agreed to with respect to the

termination of [the 2015 Employment Agreement]"), with 2017

- 25 - Employment Agreement at 1 (identifying 2017 Employment Agreement

as an offer to Zhang for "the new position of Senior Corporate

Advisor"). To carry out this object, the integrated agreement

provides Zhang with two forms of compensation. First, the Release

Agreement includes the at-issue severance provision:

Payments. In consideration for your execution, non-revocation and compliance with this Agreement, the Company agrees to make monthly severance payments to you in the amount of $680,000 for sixteen (16) months following the offer termination Date (the "Severance Period") . . . .

Second, the 2017 Employment Agreement includes a salary provision

for Zhang's new advisor role:

Base Salary. Your initial salary will be at the rate of $10,000 bi-weekly, which equates to $240,000 on an annualized basis.

The district court analyzed just the severance-payment

provision and concluded that it supported only one meaning: that

Dahua was to make sixteen severance payments to Zhang over the

course of sixteen months, each in the amount of $680,000. Dahua

Tech., 2024 WL 1075066, at *4. Put differently, the district court

adopted a reading that construed the word "monthly" as relating

forward to modify "severance payments," thus making "monthly

severance payments" the direct object of the provision. "[I]n the

amount of $680,000," in turn, modifies that direct object, telling

the reader that each monthly severance payment should be $680,000.

- 26 - While that is a reasonable way to read the severance

provision, it is not the only plausible reading. The text also

supports a construction in which "monthly" relates backwards to

modify "make," thus making "severance payments" (as opposed to

"monthly severance payments") the direct object of the provision.

When read in this manner, it is unclear whether $680,000 describes

the monthly or total severance payment, as one can just as well

make "severance payments" in the total amount of $680,000 or

monthly payments in that amount. The immediate context does not

resolve that ambiguity: "make monthly" and "for sixteen (16)

months" indicate the frequency and duration of the payments,

respectively, but neither phrase clarifies the intended amount.

Contrary to the district court's suggestion, this

alternative construction does not require reading "monthly" out of

the provision. As just noted, "monthly" may speak to the frequency

with which severance payments are to be "ma[de]." In this

construction, "monthly" provides important information for how the

provision will be executed; specifically, it confirms that, during

the life of the severance provision, Dahua will make payments on

a specific, periodic basis. It is also grammatically correct since

adverbs may modify verbs that they immediately follow (e.g., "make

expeditiously"). See United States v. Cunningham, 630 F. Appx.

873, 878 n.6 (10th Cir. 2015) ("The general rule is that a

modifier, like an adverb, is placed next to the word it

- 27 - modifies."); see also DeWolfe, 985 N.E.2d at 1195 (rules of grammar

are to be "generally adhered to" in interpreting a contract). We

thus disagree with the basis on which the district court declared

the provision plain. It is possible to interpret the severance

provision in a way that "give[s] effect" to "every word" and still

leaves ambiguous the total amount of severance owed. DeWolfe, 464

Mass. at 804.

There are additional interpretative canons that make

Dahua's preferred construction plausible. One is the "[b]lack

letter law teach[ing] that 'a construction . . . comport[ing] with

the [a]greement as a whole is to be preferred even if it be thought

that certain language, viewed only by itself, more readily suggests

something else.'" Fashion House, Inc., 892 F.2d at 1083 (quoting

(Spartan Indus., Inc. v. John Pilling Shoe Co., 385 F.2d 498, 499

(1st Cir. 1967)). Another is the principle that "related

provisions may cast light on meaning." Nat'l Tax Instit., Inc. v.

Topnotch at Stowe Resort & Spa, 388 F.3d 15, 19 (1st Cir. 2004).

Here, the two payment provisions in the 2017

Agreement -- i.e., the base salary provision in the 2017

Employment Agreement and the severance provision in the Release

Agreement -- are inconsistent in their constructions. Zhang's new

salary as a senior corporate advisor to Dahua is defined in

reference to a total amount ($240,000) reduced to a specific

periodic amount ($10,000 paid biweekly) to be paid for a certain

- 28 - amount of time (two years). Zhang's severance, by contrast, is

defined only in reference to an amount ($680,000) to be paid at

specified intervals (monthly) over a specified period (16 months).

Dahua argues that the absence of a second dollar amount in the

description of the severance payment adds uncertainty over whether

the parties meant for $680,000 to represent the total amount of

severance or the periodic amount to be paid at monthly intervals.

We agree.

Dahua's alternative construction finds further support

in the "background facts that explain the context in which the

agreement was made."5 SAPC, Inc., 921 F.2d at 361 n.2. Based on

the circumstances of the transaction, it appears that Zhejiang's

reason to pay Zhang $240,000 per year for two years to work as an

5 Considering such information in the context of our ambiguity analysis is permissible pursuant to the Massachusetts version of the parol evidence rule, under which a court may look to limited extrinsic evidence to find ambiguity before concluding that a contract is facially ambiguous. SAPC, Inc. v. Lotus Dev. Corp., 921 F.2d 360, 361 n.2 (1st Cir. 1990) (citing Louis Stoico, Inc. v. Colonial Dev. Corp., 343 N.E.2d 872, 875 (Mass. 1976)); see Robert Indus., Inc. v. Spence, 291 N.E.2d 407, 409 (Mass. 1973) ("[A contract] is to be read in the light of the circumstances of its execution, which may enable the court to see that its words are really ambiguous."); cf. Cullinet Software, Inc. v. McCormack & Dodge Corp., 511 N.E.2d 1101, 1102 (Mass. 1987) ("The judge quite properly heard evidence to aid in the construction of the agreement, even before he decided whether the agreement was ambiguous."). Though such evidence may not be used to "contradict, vary, or broaden an integrated writing," Kobayashi v. Orion Ventures, Inc., 678 N.E.2d 180, 184 (Mass. App. Ct. 1997), it may suggest that the writing is susceptible to more than one meaning, see Starr, 648 N.E.2d at 1269 n.11.

- 29 - advisor on ad hoc projects was to encourage him to leave his

management position on good terms. If, however, Zhejiang was

willing to pay Zhang $10.2 million of severance in exchange for

his separation and associated restrictions, it seems strange that

the parties would view a comparatively trivial $480,000 as a

necessary additional sweetener.6 See Starr, 648 N.E.2d at 1269

n.11 (noting with approval that the Restatement (Second) of

Contracts § 212 supports making a "determination of meaning or

ambiguity . . . in the light of the relevant evidence of the

situation and the relations of the parties, the subject matter of

the transaction, preliminary negotiations and statements made

therein, usages of trade, and the course of dealing between the

parties" (quoting Restatement (Second) of Contracts § 212 cmt.

b)). Indeed, for Dahua to agree to pay Zhang $10.2 million in

severance -- a sum nearly fifteen times greater than the amount of

conditionally guaranteed salary remaining under the 2015

Employment Agreement -- only to keep him on salary as a consultant

6 Of course, the severance amount was also contingent upon Zhang's release of claims and compliance with important restrictive covenants. But the 2017 Employment Agreement also contains a proprietary information provision barring Zhang from divulging any of the company's confidential information "to any person," both "during the term of [his] employment with the Company or thereafter." Thus, while Zhang's "silence and cooperation may well have been of significant value to Zhejiang," Dahua Tech., 2022 WL 12370835, at *14, it does not follow that $10.2 million necessarily represents the purchase price for keeping Zhang from disclosing potentially unflattering information.

- 30 - for another two years, does not seem a particularly likely bargain

for securing Zhang's amicable termination. See Fishman v. LaSalle

Nat'l Bank, 247 F.3d 300, 302 (1st Cir. 2001) ("The presumption in

commercial contracts is that the parties were trying to accomplish

something rational." (citing Shea v. Bay State Gas Co., 418 N.E.2d

597, 601-02 (Mass. 1981))).

The district court recognized this business reality when

it concluded that the plain meaning of the severance provision

required a result that neither party intended. But this same

information also affects the assessment of the ambiguity question.

See supra n.5; see also Shea, 418 N.E.2d at 601 ("[W]e cannot

ignore the basic rule of construction that [a court] must give

effect to the parties' intentions and construe the language to

give it reasonable meaning wherever possible."); cf. Cadle Co. v.

Vargas, 771 N.E.2d 179, 366 (Mass. App. Ct. 2002) ("Common sense

is as much a part of contract interpretation as is the dictionary

or the arsenal of canons." (quoting Fishman, 247 F.3d at 302-03)).

For this reason and those discussed above, we conclude that the

severance provision plausibly supports two interpretations and

thus is ambiguous a matter of law.

Our conclusion leaves the question of next steps. Once

a court concludes that a term at issue in a contract is ambiguous

as a matter of law, the focus shifts to resolving that ambiguity.

RCI Ne. Servs. Div. v. Bos. Edison Co., 822 F.2d 199, 202 (1st

- 31 - Cir. 1987). This is a question of fact to be made by a factfinder,

the resolution of which turns on "the intent of the parties." Id.

We appreciate that significant time and attention has

already been expended to consider the parties' intent. But to

date, the intent question was considered only in the context of

resolving Dahua's request for equitable remedies. The parties

should be provided the opportunity to make arguments and, if

necessary, present additional evidence that bears on the correct

interpretation of the ambiguous severance provision. We thus

remand for the district court to construe the severance provision

based on evidence concerning the parties' intended meaning.7

C. Implied Covenant of Good Faith and Fair Dealing

This leaves only Dahua's claim that Zhang breached the

implied covenant of good faith and fair dealing when he refused to

sign an amendment to reform the purported scrivener's error in the

Release Agreement. As the district court correctly observed,

"[t]he concept of good faith 'is shaped by the nature of the

contractual relationship from which the implied covenant derives,'

7 We recognize that in rejecting the ambiguity claim below, the district court noted that, even if the provision were ambiguous, it would be inclined to construe that ambiguity against Dahua as the drafter of the Release Agreement. While Dahua's role as drafter may be a relevant consideration, we note that "[a] prerequisite to the application of [that] rule is that the alternative interpretation placed upon the alleged ambiguity . . . be, under all circumstances, a reasonable and practical one." James B. Nutter & Co. v. Est. of Murphy, 88 N.E.3d 1133, 1141 (Mass. 2018) (second alteration in original).

- 32 - and the 'scope of the covenant is only as broad as the contract

that governs the particular relationship.'" Young v. Wells Fargo

Bank, N.A., 717 F.3d 224, 238 (1st Cir. 2013) (quoting Ayash v.

Dana–Farber Cancer Inst., 822 N.E.2d 667, 684 (Mass. 2005)).

Here, there is nothing in the 2017 Agreement that would

impose a duty on Zhang to agree to or even consider a modification

of Dahua's obligations thereunder. See Renovator's Supply, Inc.

v. Sovereign Bank, 892 N.E. 2d 777, 790 (Mass. App. Ct. 2008)

(observing the importance of "limit[ing] the duties of the parties

to the expressed and accomplished terms of their agreement"). Nor

can Dahua sustain an implied covenant claim against Zhang based on

the possibility that he knew that Dahua did not intend for the

Release Agreement to provide severance in the amount of $680,000

per month for sixteen months. See id. (reversing judgment on

implied covenant claim where "actionable conduct related entirely

to the formation" of an agreement "and not to the performance of

the existing agreement"). Dahua's implied covenant claim thus

fails regardless of how the underlying contract dispute is

ultimately resolved.

CONCLUSION

For the reason stated, we vacate the judgment and remand

for further proceedings, except for the district court's ruling

- 33 - that Dahua's implied covenant of good faith and fair dealing claim

fails, which we affirm. No costs are awarded.

So ordered.

- 34 -