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USCA1 Opinion
UNITED STATES COURT OF APPEALS UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT FOR THE FIRST CIRCUIT
____________________
No. 95-1356
ORKIN EXTERMINATING COMPANY, INC.
D/B/A ORKIN LAWN CARE,
Plaintiff, Appellant,
v.
ARTHUR WALTER RATHJE, III,
Defendant, Appellee.
____________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Nancy J. Gertner, U.S. District Judge] ___________________
____________________
Before
Cyr, Circuit Judge, _____________
Bownes, Senior Circuit Judge, ____________________
and Boudin, Circuit Judge. _____________
____________________
Richard P. Decker, with whom David H. Woodham, Decker & Hallman, _________________ _________________ _________________
and James E. Riley, Jr., Of Counsel, were on brief for Orkin ______________________
Exterminating Company, Inc.
Philip A. Tracy, Jr., with whom Paul T. Prew and DiMento & _______________________ _____________ _________
Sullivan, were on brief for appellee. ________
____________________
December 20, 1995
____________________
BOWNES, Senior Circuit Judge. Plaintiff-appellant, BOWNES, Senior Circuit Judge. ____________________
Orkin Exterminating Company, Inc. ("Orkin") operates a
nationwide chemical application lawn care business.
Defendant-appellee, Arthur Walter Rathje, III, was the
manager of the Hingham, Massachusetts, branch office from
May, 1987, until his resignation on April 9, 1993. In the
winter of 1992, defendant's wife created a business entity
called "Nature's Way," later changed to "Global Green"
(collectively - Global). Global was in the chemical
application lawn care business and operated in the same area
as did Orkin's Hingham branch.
On August 3, 1993, Orkin sued defendant, Arthur
Rathje, and his wife, Karen, on the following grounds: (1)
defendant, Arthur Rathje, while an employee of Orkin breached
his fiduciary duty to Orkin by working for Global as a
management employee; (2) defendant Arthur Rathje engaged in
unfair trade practices while an employee of Orkin in
violation of Mass. Gen. Laws Ann. ch. 93A 3 (West 1984);
(3) defendant, Arthur Rathje, converted property owned by
Orkin; (4) Karen Rathje tortiously interfered with the
business relationship between defendant, Arthur Rathje, and
Orkin; and (5) Karen Rathje converted property owned by
Orkin.
The case was tried to a jury and all claims were
submitted to the jury. It found in favor of Karen Rathje on
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all claims against her. No appeal has been taken from these
verdicts. The jury found for defendant, Arthur Rathje, on
the conversion claim. No appeal has been taken from this
verdict.
The jury could not agree on the breach of fiduciary
duty claim, nor on the claim brought under Mass. Gen. Laws
Ann. ch. 93A. Both claims had been submitted to the jury on
an advisory basis. With the acquiescence of counsel, the
district court decided these two claims. It is from the
findings and rulings of the district court on these claims
that Orkin appeals.
Breach of Fiduciary Duty Breach of Fiduciary Duty ________________________
Under Massachusetts law, "[e]mployees occupying
positions of trust and confidence owe a duty of loyalty to
their employer and must protect the interests of the
employer." Chelsea Indus., Inc. v. Gaffney, 389 Mass. 1, 11 _______________________________
(1983). It follows that "an executive employee is 'barred
from actively competing with his employer during the tenure
of his employment, even in the absence of an express covenant
so providing.'" Id. at 11-12 (citations omitted). ___
Under Massachusetts law there are two remedies
available to an employer for breach of fiduciary duty by an
employee. If the conduct caused a loss to the employer, it
can recover as damages the amount of such loss. Augat, Inc. ___________
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v. Aegis, Inc., 409 Mass. 165, 175 (1991); Meehan v. ________________ __________
Shaughnessy; Cohen, 404 Mass. 419, 436 n.14 (1989). __________________
The second remedy is forfeiture of compensation by
the employee during the period of breach of fiduciary duty.
An employee "can be required to forfeit the right of
compensation even absent a showing of actual injury to the
employer." Chelsea Indus., Inc. v. Gaffney, 389 Mass. at 12- _______________________________
13.
We discuss the district court's findings and
rulings seriatim. ________
We agree with the district court's conclusion that
defendant breached his fiduciary duty of loyalty to Orkin by
helping his wife operate a lawn care business in competition
with the Orkin branch office which he managed. There is no
need to restate the factual findings leading to this
conclusion. They are set forth clearly and explicitly in the
district court opinion and we adopt them.
The district court further found that Orkin had not
proven that defendant's conduct, reprehensible as it may have
been, caused any damage to Orkin. It held that Orkin did not
prove a causal connection between defendant's conduct and its
claim that the branch office defendant managed became
worthless. We have reviewed the trial record carefully and
can find no basis for setting the conclusion aside as clearly
erroneous.
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Plaintiff's expert testified that the branch office
was worth a minimum of $106,000 in 1990 and in 1993 had no
value at all. Two of the factors he considered were material
and equipment that disappeared from the branch office during
defendant's tenure as manager. This was the basis of
plaintiff's conversion count. But the jury found for
defendant on the conversion claim and that verdict has not
been appealed. The missing equipment, materials, and
supplies, if such there was, cannot be attributed to
defendant. And as the district court pointed out, there was
persuasive evidence that during the period defendant was
wearing two hats, the branch office prospered. During this
time, business expanded and profits increased. Defendant
received two bonuses during the implicated period - April
1992 - April 1993. None of defendant's superiors complained
about his work; in fact, his managerial talents were lauded.
And it must be noted that defendant resigned voluntarily;
there is no evidence that he was pressured into doing so.
Defendant may have breached his fiduciary duty to Orkin, but
there is evidence in plentitude from which it could be found
that such breach caused no harm to Orkin.
We next address the district court's finding that
Orkin could not recover the compensation paid defendant
during the period he breached his fiduciary duty - April 1,
1992 to April 9, 1993. There is no dispute about the period
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of time during which the breach of fiduciary duty took place.
The court found: "[T]he value of his [defendant's] work was
equivalent to his salary notwithstanding what he was doing
for his wife's small business. Therefore, Mr. Rathje
satisfied his burden of showing that the value of the work he
performed for Orkin equalled the compensation he received
during the period he breached his duty of loyalty."
We turn to the applicable Massachusetts law. In
Chelsea Indus., Inc. v. Gaffney, the court held that "unless ________________________________
defendants proved the value of their services, the plaintiff
was entitled to recover their entire compensation." 289
Mass. at 14. The court then went on to note that, although
given the opportunity to do so, defendants had failed to
present evidence as to the fair value of their services. Id. ___
at 15. In Meehan v. Shaughnessy, the court held that a ______________________
fiduciary may be required to repay only that portion of his
compensation that exceeded the worth of his services to his
employer. 404 Mass. at 441. Clearly, under Massachusetts
law the employee must prove the value of his/her services
during the breach period.
We hesitate to set aside the factual finding of the
district court that defendant "satisfied his burden of
showing that the value of the work he performed for Orkin
equalled the compensation he received during the period he
breached his duty of loyalty." But we are persuaded that the
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finding is clearly erroneous for two related reasons. First,
there was no explicit evidence as to the fair value of
defendant's services during the period of breached loyalty as
would seem to be required under Massachusetts law. This
standing alone, however, would not render the finding clearly
erroneous. There was evidence which, in the ordinary case,
would suffice to sustain the district court's finding despite
the lack of explicit evidence by defendant that the salary
paid to him during the period equalled the fair value of the
services performed.
This, however, is not the ordinary case. Because
of the court's finding that defendant's energies were
diverted away from his responsibilities to Orkin, and given
the burden on him to prove the value of his services, the
court's finding that he was worth everything Orkin paid him
is very hard to credit. It could be argued that Orkin set up
fairly precise standards for measuring the job performance of
an employee in defendant's position and that defendant
satisfied them. There may be certain jobs where it is
possible to measure an employee's performance so accurately
that evidence of the employer's positive evaluation would
sustain a finding that the amount paid the employee would
equal the fair value of his services. But this is not such a
case.
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In this case, such a measurement was not possible.
As a branch office manager, defendant not only operated with
relatively little direct monitoring, but also contributed to
the criteria used to judge his performance. In a "1st
quarter review letter" authored by defendant, dated March 27,
1993, which was within the breached-loyalty period, he
stated, in effect, that he was ahead of Orkin's goal for
customer confirmations and its profit/loss target. The
evidence establishes that defendant helped formulate his own
branch office goals.
We think it was error for the district court to
place the emphasis it did on the bonuses paid defendant by
Orkin and the positive evaluation he received because they
were based on Orkin's mistaken belief that defendant was
putting his undiluted efforts into its business. Had
defendant not deceived his employer, it is clear that its
perception of his value to the company would have been
altered. We therefore hold that it was clearly erroneous for
the district court to find that the fair value of defendant's
services to Orkin was unimpaired. The court failed to give
proper weight to its own finding, solidly supported in the
record, that defendant diverted an appreciable amount of his
time and energy from Orkin's business to a competing business
owned and operated by him and his wife. And the court
apparently failed to factor into its finding the heavy burden
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on defendant to prove that his work was worth the full amount
paid him by Orkin.
We recognize that the evidence credited by the
district court indicates that defendant's services were worth
something to Orkin. But under our reading of the record and
our understanding of Massachusetts law, this must be less
than the full amount paid. A remand is, therefore,
necessary. Although the court's calculation will necessarily
be imprecise, it is well within the capability of the trial
judge to make. We will, of course, give substantial
deference to a reasonable finding by the court.
The district court also committed clear error in
another respect. It found in footnote six of its opinion
that "Orkin submitted no evidence reflecting the compensation
paid Mr. Rathje during the relevant period." The relevant
period was from April 1, 1992 to April 9, 1993. In fact,
Exhibit T shows that defendant was paid $45,000, including
bonuses, from January 1, 1992 to December 31, 1992, and
$13,905.29 for the period January 1, 1993 to April 9, 1993.
Although this does not cover the relevant period precisely,
it is sufficiently complete so that the amount of
compensation paid during the relevant period can be prorated
and accurately determined.
The 93A Claim The 93A Claim _____________
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Chapter 93A 11 of Mass. Gen. Laws Ann. (West
1984) provides:
Any person who engages in the conduct of
any trade or commerce and who suffers any
loss of money or property, real or
personal, as a result of the use or
employment or by another person who
engages in any trade or commerce of an
unfair method of competition or an unfair
or deceptive act or practice declared
unlawful by section two ... may ... bring
an action in the superior court ... for
damages and equitable relief...
The district court held that because Orkin failed
to prove a causal connection between defendant's conduct and
harm, if any, to Orkin, there was no 93A violation. We
agree. As already pointed out, there was evidence from which
it could reasonably be found that the Orkin branch, operated
by defendant during the time he aided and abetted his wife in
competition with Orkin, prospered. See supra. It is beyond ___ _____
peradventure that "there must be a causal connection between
seller's deception and the buyer's loss." Kohl v. Silver _______________
Lake Motors, Inc., 369 Mass. 795, 800-01 (1976); Shepard's __________________ _________
Pharmacy v. Stop & Shop Companies, Inc., 37 Mass. App. Ct. _________________________________________
516, 522 (1994); PDM Mechanical Contractors, Inc. v. Suffolk ____________________________________________
Constr. Co., Inc., 35 Mass. App. Ct. 228, 237 (1993). _________________
Affirmed in part. Remanded for the district court Affirmed in part. Remanded for the district court ___________________________________________________
to determine an appropriate amount of defendant's salary for to determine an appropriate amount of defendant's salary for _____________________________________________________________
reimbursement to Orkin. reimbursement to Orkin. _______________________
No costs to either party. No costs to either party. _________________________
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Document Info
Docket Number： 95-1356
Filed Date： 12/20/1995
Precedential Status： Precedential
Modified Date： 9/21/2015