Sargent v. Tenaska

• Court: Court of Appeals for the First Circuit
• Decided: March 5, 1997
• Docket: 96-1804
• Status: Published

Opinion

USCA1 Opinion

UNITED STATES COURT OF APPEALS

                                FOR THE FIRST CIRCUIT

                                 ____________________



        No. 96-1804



                                  WAYNE H. SARGENT,



                                Plaintiff, Appellant,



                                          v.



                                    TENASKA, INC.,



                                 Defendant, Appellee.



                                 ____________________



                     APPEAL FROM THE UNITED STATES DISTRICT COURT



                          FOR THE DISTRICT OF MASSACHUSETTS



                    [Hon. Michael A. Ponsor, U.S. District Judge]
                                             ___________________



                                 ____________________



                                        Before



                                 Selya, Circuit Judge,
                                        _____________



                            Aldrich, Senior Circuit Judge,
                                     ____________________



                              and Boudin, Circuit Judge.
                                          _____________



                                 ____________________



            Thomas P.  Billings with  whom Karen S.  White and  Sally &  Fitch
            ___________________            _______________      ______________

        were on brief for appellant.

            Stephen B. Deutsch with whom Foley, Hoag &  Eliot was on brief for
            __________________           ____________________

        appellee.


____________________



                                    March 5, 1997

                                 ____________________



BOUDIN,  Circuit  Judge.    Wayne Sargent  brought  this
                          ______________



            action  in the  district court  against his  former employer,



            Tenaska, Inc.   On appeal,  the case has  been narrowed:  the



            issue  is whether  Sargent has a  claim to  certain ownership



            interests  because  of  an  alleged  breach  of  the  implied



            covenant of  good faith and fair  dealing under Massachusetts



            law.   Because  the district  court granted  summary judgment



            against Sargent  on  this issue,  we review  its decision  de
                                                                       __



            novo,  drawing  reasonable  factual inferences  in  Sargent's
            ____



            favor.  Grenier v. Vermont Log Bldgs., Inc., 96 F.3d 559, 562
                    _______    ________________________



            (1st Cir. 1996).



                 Tenaska,   Inc.,   develops    power   generation    and



            cogeneration  projects  in  different  areas  of  the  United



            States.  Sargent, a Massachusetts resident with many years of



            pertinent engineering and management experience, was hired by



            Tenaska, Inc., in May 1990.  His title was General Manager of



            the  Eastern  Region.    Tenaska, Inc.,  had  a  cogeneration



            project  under way  in Lee,  Massachusetts, and it  was hoped



            that  Sargent would  organize other  projects in  the Eastern



            Region for the company.



                 Sargent's compensation  included not only  a management-



            level  salary but also a promise of an "ownership interest of



            1.50%  in  Tenaska,  Inc.,  Lee  Mass  Cogeneration  Company,



            Tenaska  Gas Company  and  in any  entities  created for  new



            projects and formed by Tenaska subsequent to [his] employment


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start  date."    This  language  appeared in  a  letter  from



            Tenaska, Inc., to Sargent  offering employment.  The district



            court treated the  letter as setting forth  the initial terms



            of an  at-will employment  relationship and neither  side now



            disputes this treatment.



                 Tenaska's  letter  provided  that   Sargent's  ownership



            rights would be made  available beginning twelve months after



            the  start of his employment.  The  letter also said that the



            ownership  plan,  which had  not  yet  been developed,  would



            ultimately  include a right of  the company "to  buy back the



            ownership  interests of terminated  employees under specified



            terms and conditions that will penalize short-term employment



            and reward performance and long-term accomplishments."  



                 Tenaska, Inc.,  never developed a single  ownership plan



            but instead set up a separate plan for each entity, including



            almost a half-dozen new ones created after Sargent joined the



            company  and  during  his  tenure.    In general,  the  plans



            provided  a vesting schedule for ownership interests acquired



            by  an employee; the company was allowed on termination of an



            employee  to repurchase  the  unvested portion  at a  nominal
                                          ________



            price.  The  vesting schedule, in the  typical plan, provided



            as follows:1   First 6 months:0% is vested



                                
            ____________________



                 1In the case  of one company, the  entire interest could

            be  repurchased  even  after  the full  vesting  period,  but

            Tenaska had to  pay book value  for the vested portion.   For

            another  company, half  the vested  interest could  always be

            repurchased for nominal value.  These variations do not alter



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Months 7-18:        15% is vested



                 Months 19-30:       35% is vested



                 Months 31-42:       65% is vested



                 After 42d month:    100% is vested 



                 Not  long after  Sargent joined  Tenaska, Inc.,  the Lee



            project  was cancelled.  The  project was not  revived and no



            other projects  were secured  in Sargent's region  during his



            period  of  employment.   In  December  1993, Tenaska,  Inc.,



            decided to  close its  Massachusetts office and  to eliminate



            Sargent's position.   Sargent was offered  a new position  at



            the company's Omaha headquarters;  the new position carried a



            lower  salary and  less favorable  benefits in  the ownership



            plans, including a reduction in various interests Sargent had



            or hoped to secure in existing projects.



                 Sargent  declined  the proposal  and  was  terminated by



            Tenaska, Inc., in January 1994, having served about three and



            one-half  years  with the  company.    Prior to  termination,



            Sargent had been granted certain ownership interests in a few



            of the Tenaska projects  but less than all to which he deemed



            himself entitled  under the  terms of the  employment letter.



            Sargent immediately brought the  present suit in the district



            court against Tenaska, Inc.,  seeking all that his employment



            letter explicitly provided, and more.  


____________________



            the issue on  appeal, and we disregard them  for simplicity's

            sake.



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The  explicit  contract claim  need not  detain us.   On



            cross motions for summary  judgment, the district court ruled



            the employment letter was a contract, suggesting that Sargent



            might be  entitled  to  ownership  interests,  or  comparable



            damages, to the extent that the promised interests had become



            vested  under their  plans  at the  time of  his termination.



            Sargent  v. Tenaska,  Inc., 914  F. Supp.  722, 729,  730 (D.
            _______     ______________



            Mass. 1996).  Thereafter,  Sargent and Tenaska, Inc., reached



            a settlement that disposed entirely of these express contract



            claims.



                 What remains  open is  Sargent's claim for  "more."   In



            substance, Sargent  has argued in  the district court  and on



            appeal  that he is also  entitled to the  unvested portion of



            the ownership  interests in  question that would  have become



            vested  in due  course if he  had not  been discharged.   The



            basis  for this claim is  the implied covenant  of good faith



            and fair dealing that Massachusetts law reads into employment



            contracts.



                 This implied  covenant has  been taken by  Massachusetts



            courts  to  permit  discharged employees  to  recover  unpaid



            commissions or  other expectancies in  certain circumstances.



            Fortune v. National Cash Register Co., 364 N.E.2d 1251, 1257-
            _______    __________________________



            58  (Mass. 1977).  One  condition is that  the discharge have



            been done in bad  faith; another, put generally, is  that the



            interest  or  claim pertains  to  "past"  services, i.e.,  to
                                                                ____


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services  already performed  at  the time  of the  discharge.



            McCone v. New England Tel.  & Tel. Co., 471 N.E.2d  47, 49-50
            ______    ____________________________



            (Mass. 1984).



                 In  the  district court  Tenaska,  Inc., sought  summary



            judgment against  this Fortune claim.   It conceded  that its
                                   _______



            good  or  bad  faith  in  discharging  Sargent  could not  be



            determined  on  summary  judgment,   but  asserted  that  the



            unvested interests claimed  by Sargent were compensation  for



            future rather than past services.  The district court agreed,



            stressing  the language  in  the employment  letter that  the



            vesting provision  was designed  to  "reward performance  and



            long-term accomplishments."  This appeal followed.



                  The  Fortune doctrine  is easy to  grasp in  the simple
                       _______



            case that spawned  it:   an at-will salesman,  entitled to  a



            commission  payable at a later date, is fired, after the sale



            but before the date of payment; and the reason for the firing



            is  to cut off the  commission.  In  that case, Massachusetts



            courts imply a covenant of good faith and fair dealing, treat



            the discharge as a breach, and fix the remedy as  an award to



            the salesman  of future compensation for  the completed sale.



            Fortune, 364 N.E.2d at 1257-58.
            _______



                 Since  Fortune  so held  in 1977,  Massachusetts appeals
                        _______



            courts have both extended and limited the doctrine in several



            important decisions.   For example,  Fortune-based recoveries
                                                 _______



            have  been  allowed in  Gram v.  Liberty  Mut. Ins.  Co., 429
                                    ____     _______________________


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N.E.2d 21, 29 (Mass.  1981) ("Gram I"), Maddaloni  v. Western
                                          ______    _________     _______



            Mass. Bus  Lines, 438  N.E.2d 351, 355-56  (Mass. 1982),  and
            ________________



            Cataldo v. Zuckerman, 482 N.E.2d  849, 855-56 (Mass. App. Ct.
            _______    _________



            1985).  These cases make clear that Fortune is not limited to
                                                _______



            simple cases of commission sales with deferred payments.  Id.
                                                                      ___



            at 851-52.



                 On  the  other  hand,  the Supreme  Judicial  Court  has



            confined recovery  to "identifiable, future benefit[s]  . . .



            reflective of past services,"  Gram I, 429  N.E.2d at 29, and
                                           ______



            firmly excluded  prospective benefits  not thus tied  to past



            services,  McCone,  471 N.E.2d  at 50; Gram  v. Liberty  Mut.
                       ______                      ____     _____________



            Ins. Co., 461 N.E.2d 796, 798 (Mass. 1984) ("Gram  II").  The
            ________                                     ________



            recurring difficulty, presented in the case before us, is how



            to decide whether the unvested  interests relate to "past" or



            "future" services.



                 We treat this characterization issue as one of law.  The



            contract terms agreed to  by the parties are not  in dispute;



            the  debate  is  whether  the law  should  extend  protection



            (assuming bad  faith discharge)  beyond the express  terms of



            the contract  to certain  expectancies.  The  extent of  such



            protection is primarily a matter for judges, not juries.  See
                                                                      ___



            Gram II, 461 N.E.2d at 798; cf. Green v. Richmond, 337 N.E.2d
            _______                     ___ _____    ________



            691, 695  (Mass. 1975) (judge  decides the legal  question of



            whether undisputed contract terms violate public policy).


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It is easy to  find a protectable interest where,  as in



            Fortune,  the promised future  payment is directly  tied to a
            _______



            particular  past service, such as a discrete sale.  This kind



            of  correlation  is  harder   where  the  future  payment  is



            connected not  with a  specific past  act but  with continued



            service at the  company over a period  of time.  The  company



            could be interested  simply in the  employee's service as  it



            occurs or,  at  the other  extreme, in  keeping the  employee



            until the last  day no matter what.  In  the former case, one



            could treat all of the time worked prior to discharge as past
                                               _____                 ____



            services  and require pro rata payment; the latter case might



            suggest otherwise.



                 In  reality, motives  are often  mixed: the  company may



            want  both to provide an ongoing incentive to work harder and



            to retain an ever more valuable employee as long as possible.



            A  periodic  vesting schedule  achieves  both  aims; and  the



            latter is  reenforced where, as here,  the incremental amount
                                                       ___________



            vested  in each period increases in later periods.  And, with



            periodic   vesting,  the   employee  gets   some  contractual



            protection (i.e.,  of vested  interests) against the  loss of
                        ____



            the job in midstream.



                 A good argument  could be made  that, where a  colorable



            periodic vesting  period is  provided, the parties  should be



            taken  to have settled between themselves  the issue that the



            Fortune doctrine  itself seeks  to mediate:  how much of  the
            _______


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promised  future  compensation should  be treated  as already



            earned  prior to the  discharge.  But  Massachusetts case law



            sends  mixed signals  on this  issue.   Compare Cataldo,  482
                                                    _______ _______



            N.E.2d at  851-52 with Cort v. Bristol-Myers  Co., 431 N.E.2d
                              ____ ____    __________________



            908, 910-11 (Mass. 1982).



                 Certainly,  terms like  "vested" and  "unvested" do  not



            automatically control.   An  agreement might provide  that an



            employee  who worked for  five years to  complete a five-year



            project would get a one-third interest at the end but nothing



            if he left prior to that date.  If  the employee was fired in



            bad  faith a  month before  completion,  it is  doubtful that



            Fortune could be shrugged off by saying that the interest had
            _______



            not yet vested.2



                 Still, ordinarily, a colorable periodic vesting schedule
                                                ________



            crudely delineates the line between past and future services.



            While  Sargent remained  at  the company,  his past  services



            grew; but so  did his  vested interests.   Most  of his  past



            services   were   therefore   already  compensated   by   his



            contractual   claims  to   vested  interests;   and  unvested



                                
            ____________________



                 2We  decline  Sargent's  invitation  to  rely  upon  the

            unpublished  slip opinion in Ground  Round, Inc. v. King, 671
                                         ___________________    ____

            N.E.2d 224  (1996) (Table), a summarily  affirmed decision of

            the Massachusetts  Appeals Court  that has some  bearing upon

            such a hypothetical.  Massachusetts forbids citations to such

            opinions in most circumstances,  see Lyons v. Labor Relations
                                             ___ _____    _______________

            Comm'n,  476 N.E.2d 243, 246  n.7 (Mass. App.  Ct. 1985), for
            ______

            reasons  explained  by the  Lyons court,  id., that  make the
                                        _____         ___

            seldom employed alternative practice exemplified by Aviles v.
                                                                ______

            Burgos, 783  F.2d 270,  283 n.4 (1st  Cir. 1986),  inapposite
            ______

            here.



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interests were largely  associated with  future services  not



            protected under Fortune.  We say "largely" because within the
                            _______                            ______



            single vesting  period embracing  the date of  discharge, one



            could  make an  effort  to distinguish  and protect  services



            already performed  between the start  of that period  and the



            date of discharge.



                 Sargent  has made no effort to argue for or support such



            a drastic narrowing of his claim; he has chosen to argue that



            yet unvested  interests  from all  then-occurring and  future
                                          ___



            vesting periods are related to past compensation.  Taking the



            case as he  has framed it, we agree with  the district court:



            taken as a  whole, the unvested interests  claimed by Sargent



            did not specifically and identifiably correspond to Sargent's



            past  services.     Predominantly,  they  were   oriented  to



            compensating services not yet provided.



                 Sargent himself  is unable  to explain how  the unvested



            interests he claims can plausibly  be treated as payment  for



            past services.  His main argument is that it would be "an odd



            sort of 'future compensation'  indeed, when the employee pays



            for  it, receives it,  earns income on it,  and pays taxes on



            it-- all in the present."  But there is nothing odd about it;



            certainly future services can be conditionally purchased by a



            nominal transfer of ownership  subject to a vesting provision



            and enforced by a buy-back option.


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Sargent's best argument hangs on a single precedent, the



            Massachusetts  Appeals  Court  decision  Cataldo.   There,  a
                                                     _______



            developer hired Cataldo to supervise its projects,  promising



            him,  in  addition  to  a  base  salary,  a  portion  of  the



            developer's  equity  in  two  named projects  and  in  future



            projects handled by the firm.  If Cataldo's  employment ended



            during a project, the firm could buy back his interest at the



            lesser of appraised value or a sliding  scale payment, giving
            ______



            Cataldo  $1,000 per  month  times the  number  of months  the



            project had consumed.  Cataldo, 482 N.E.2d at 851-52.
                                   _______



                 The  latter provision was effectively a periodic vesting



            provision.  When  Cataldo was  later fired, he  sued for  his



            share  of  the  developer's  equity  in  several  uncompleted



            projects.   Although the  trial judge apparently  thought the



            express contract claim more  suitable, he also instructed the



            jury under  Fortune doctrine.   Cataldo,  482 N.E.2d at  854.
                        _______             _______



            The jury awarded Cataldo substantial sums.  The Appeals Court



            affirmed, saying:



                           We conclude that,  when Cataldo  was

                      discharged, the  possibility that Cataldo

                      would gain  later a  vested share  of the

                      developer's equity in each [firm] project

                      then    viable   was    sufficiently   an

                      `identifiable,  future  benefit  .   .  .

                      reflective   of  past  services'  .  .  .

                      performed by Cataldo,  to come within the

                      principle  of  the  Fortune  case.     We
                                          _______

                      recognize,  of  course, that  the precise

                      limits of  the doctrine of  that case are

                      not free from doubt.



            Cataldo, 482 N.E.2d at 855-56 (citations omitted).
            _______


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Yet  the  Appeals  Court  never decided  the  question--



            critical  to us--whether the  buy-back provision  limited the



            firm's  liability  to  Cataldo  with  respect  to uncompleted



            projects.   Instead, the court upheld a jury finding that the



            buy-back option  had been waived  because the firm  failed to



            exercise  that option promptly.  Cataldo,  482 N.E.2d at 857.
                                             _______



            Indeed, the court's language  implies that it might otherwise



            have limited liability to the  vested interests.  Hammond  v.
                                                              _______



            T.J.  Litle  & Co.,  82 F.3d  1166,  1168-69, 1172  (1st Cir.
            __________________



            1996), perhaps closer to  our own facts, turned on  the plain



            error rule.



                 Absent controlling  precedent, we  have sought to  apply



            the principle of  Fortune--protection of compensation  earned
                              _______



            for  past  services--and  conclude   that  it  does  not  fit
                 ____



            Sargent's unvested interests.  To repeat, this is not because



            of  any magic in the  terms vested and  unvested, but because



            the  unvested  interests  here  predominantly  concern future
                                                                   ______



            services  expected from Sargent.  Gram II, 461 N.E.2d at 798.
                                              _______



            If  Fortune  is to  be extended,  this  is a  matter  for the
                _______



            Massachusetts courts and not for us.



                 Affirmed.
                 ________


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