Dinan v. Alpha Networks, Inc. , 764 F.3d 64 ( 2014 )

United States Court of Appeals
For the First Circuit
No. 13-1976
MICHAEL DINAN,
Plaintiff, Appellant,
v.
ALPHA NETWORKS, INC.
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MAINE
[Hon. John A. Woodcock, Jr., U.S. District Judge]
Before
Lynch, Chief Judge,
Selya and Kayatta, Circuit Judges.
Patrick S. Bedard, with whom Bedard & Bobrow, P.C. was on
brief, for appellant.
Daniel P. Schwarz, with whom Jackson Lewis, P.C. was on brief,
for appellee.
August 20, 2014
KAYATTA, Circuit Judge. Michael Dinan, a resident of
Maine, began working for California-based Alpha Networks as a
salesman in 2005 pursuant to a written employment agreement. In
2010 Dinan ceased working for Alpha because of a dispute over how
much he was entitled to be paid in commissions. Litigation
followed. A jury ultimately found that the written agreement
included no promise to pay Dinan commissions on sales after 2008,
but that Dinan was entitled to quasi-contract damages in the amount
of $70,331.93 for sales made in 2009 and 2010. The question then
remained whether to treble those damages and award attorneys' fees
under Maine's wage payment law, or instead to add on to the damage
award only liquidated damages of $7,799.97 under California law.
Finding the question to be a close one, the district court opted to
rely on a choice-of-law provision in the written agreement calling
for application of California law in certain disputes. Agreeing
that determining the correct choice of law on this unusual record
is not straightforward, we nevertheless find that Maine's highest
court would most likely deem Dinan entitled to the full array of
remedies set forth in Maine's wage payment law. We therefore vacate
the award and remand the case so that the district court can treble
damages, calculate interest, and entertain a request for attorneys'
fees under Maine law.
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I. Background
The parties do not dispute the basic facts on appeal.
Alpha is a California-based designer and manufacturer of modems,
routers, switches, and other computer hardware. Rather than market
its products under its own brand, Alpha is a "white-label"
manufacturer, selling to other companies who market the devices
under their brand names. Dinan's job was to sell Alpha's devices
to those brands. When Dinan joined Alpha in 2005, he lived in
Portland, Maine. Though he initially thought he might have to move
to Boston, Alpha ultimately concluded that he could work from Maine.
Prior to commencing work for Alpha, Dinan signed a letter from Alpha
specifying the terms of his employment ("the 2005 agreement") which
provided that Alpha would pay him, in part, based on a specified
commission structure.
After he joined Alpha, Dinan spent his first week and a
half in California learning about Alpha and its products.
Thereafter he worked from his home in Portland except when he
traveled to meet customers in other states, including Texas,
Alabama, and Massachusetts. In 2008, Alpha sent an email to Dinan
containing a new commission structure ("the 2008 compensation
plan"). Dinan thought that the 2008 compensation plan was likely
to compensate him less than the commission structure in the 2005
agreement. He expressed his unhappiness to his bosses and,
according to his trial testimony, was promised a new compensation
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plan for sales in 2009, though he was not promised that it would
provide him with better terms than the 2008 compensation plan. No
new compensation plan was ever announced.
Dinan left Alpha in March 2010, having received no
commissions on his sales in 2009 or 2010 aside from a $4,000 payment
that he received in December of 2009. Shortly thereafter, Dinan
filed suit in Maine state court. After Alpha removed the case to
federal court it proceeded to trial. At trial, the jury was asked
to consider, among other things, Dinan's claims for breach of
contract and, alternatively, for so-called quasi-contract damages.
The jury concluded that Dinan had not "established that Alpha . . .
and he entered into an employment agreement in which Alpha . . .
promised to pay him commissions for 2009 and 2010." It nevertheless
also found that Dinan had "established that he [was] entitled to
damages under quasi-contract," that the amount of those damages was
$70,331.93, and that he had "established that Alpha . . . failed to
pay [him] his wages, including commissions."
After trial the parties disagreed about which state's law
governed whether and to what extent the jury's award of damages
should be augmented with additional remedies. Under California law,
the parties agree, Dinan would be entitled to 30 days' wages (which
the jury valued at $7,799.97) as liquidated damages in addition to
the $70,331.93 in compensatory quasi-contract damages awarded by the
jury. See Cal. Lab. Code § 203. The parties also agree that, under
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Maine law, Dinan would be entitled to a liquidated damages award of
double his compensatory damages, equaling an additional $140,663.86,
as well as attorneys' fees and costs. See Me. Rev. Stat. tit. 26,
§ 626. The district court found that California law applied. Dinan
also argued unsuccessfully below that he was entitled to pre-
judgment interest on any liquidated damages he was awarded. Id.
II. Standard of Review
This appeal presents exclusively questions of law, not
fact or discretion, hence our review is de novo. See, e.g.,
Robidoux v. Muholland, 642 F.3d 20, 22 (1st Cir. 2011). With
jurisdiction in the District of Maine resting solely on diversity
of citizenship, we answer these substantive questions of law as we
expect Maine's highest court, its Law Court, would answer them.
See, e.g., Samaan v. St. Joseph Hosp., 670 F.3d 21, 29 (1st Cir.
2012).
III. Discussion
A. The Choice of Law Question
Resolving the choice-of-law issue central to this appeal
begins with considering the parties' 2005 agreement specifying the
original terms of Dinan's employment. That agreement included the
following clause:
The terms of this letter shall be governed by and
construed and enforced in accordance with the laws of the
State of California, without giving effect to any choice
or conflict of law provision or rule (whether of the
State of California or any other jurisdiction) that would
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cause the application of the laws of any jurisdiction
other than the State of California. Any term or
provision of this letter agreement that is invalid or
unenforceable in any situation in any jurisdiction shall
not affect the validity or enforceability of the
remaining terms and provisions hereof or the validity or
enforceability of the offending term or provision in any
other situation or in any other jurisdiction.
See Dinan v. Alpha Networks Inc., 957 F. Supp. 2d 44, 54 (D. Me.
2013). Under Maine law, this choice of law provision would govern
a claim for breach of the 2005 agreement unless (1) California had
no substantial relationship to the parties or the transaction or (2)
applying California law would be contrary to "a fundamental policy
of a state which has a materially greater interest" than California
as to the "determination" of this particular issue. Schroeder v.
Rynel, Ltd., 720 A.2d 1164, 1166 (Me. 1998); Restatement (Second)
of Conflict of Laws § 187 (1971).
Alpha in fact sought to build its defense at trial on the
foundation of the 2005 agreement. It argued that the 2008
compensation plan was a modification of the 2005 employment
agreement, that Dinan accepted the modification by continuing to
work for Alpha, and that the 2005 agreement, as modified by the 2008
compensation plan, set forth the terms of Alpha's promise to pay
commissions for 2009 and 2010. Consistent with this approach, Alpha
agreed to a jury instruction as follows:
The parties have presented evidence of a 2005
compensation plan and a 2008 compensation plan. If you
determine that an agreement was in force in 2009 and
2010, you must determine the terms of that agreement.
Alpha contends that a 2008 compensation plan modified the
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2005 employment agreement. An employee who continues to
work for his employer after the employer has given notice
of changed terms and conditions of employment has
accepted the changed terms and conditions. If you find
the 2008 plan was in place during 2009 and 2010, you may
find that Mr. Dinan is entitled to compensation under
that plan.
This was a seemingly solid argument, but the jury rejected
it. The jury found that Alpha and Dinan had no agreement that Alpha
would pay commissions for 2009 and 2010. In one respect, this meant
that Alpha won the breach of contract claim. In another respect,
though, the jury's verdict is more clearly read as a finding that
the 2005 agreement simply did not govern the terms of the parties'
relationship in 2009 and 2010 (i.e., in the words of the district
court's instruction, it was not "in force in 2009 and 2010").
The verdict form, accordingly, required the jury to
proceed further and consider an alternative claim of
"quasi-contract" if it found that there was no promise in an
employment agreement to pay commissions for 2009 and 2010. The jury
verdict for Dinan thus rested entirely upon a claim for "breach of
a quasi-contract." The jury instructions, to which Alpha did not
object, stated as follows:
Mr. Dinan claims that even if he did not have a valid
contract with Alpha that entitled him to bonuses, he is
entitled to payment for the services he rendered. This
amounts to a claim that he and Alpha had a quasi
contract.
To prove a claim of breach -- for breach of a quasi
contract, Mr. Dinan must prove by a preponderance of the
evidence that: One, he rendered services to Alpha; two,
the services were rendered with Alpha's knowledge and
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consent; and, three, the services were rendered under
circumstances that make it reasonable for the plaintiff
to expect payment.
In finding Alpha liable on this theory alone, the jury found Alpha
independently liable not by force of promise, but by virtue of
knowingly having accepted services "under circumstances that make
it reasonable for [Dinan] to expect payment."
This brings us back to the choice-of-law clause in Alpha's
letter to Dinan that constituted the 2005 agreement. While Alpha
claims that the clause governs "disputes about the parties'
employment relationship," it is in fact narrower than that. It
states only that "[t]he terms of this letter" are to be "governed
by and construed and enforced" under California law. The question
of what fair compensation is due Dinan under a quasi-contract theory
calls for no construction or enforcement of the terms of that
letter. Rather, instead of telling the jury to calculate damages
based on a reading of the 2005 agreement, the court (again without
challenge) told the jury to determine "the reasonable value of the
services."
Alpha also argues that what really happened here is that
the jury came up with a missing term of the 2005 agreement (i.e.,
a compensation plan for 2009 and 2010). Such an approach certainly
would have made much sense in the abstract. The problem is that the
jury clearly found no breach of any promise of any type, whether
express or implied, under the 2005 agreement, instead effectively
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finding that the agreement simply did not deal with 2009 and 2010
commissions. And the 2005 agreement on its face disavows having any
unexpressed terms, stating that it "form[s] the complete and
exclusive statement of [Dinan's] employment with [Alpha]." In any
event, since Alpha agreed that the jury could consider a claim for
breach of quasi-contract even where the parties had an actual
contract, and since the jury found no breach of any promise in the
2005 agreement, it cannot now say that the jury should only have
been allowed to hold it liable for a breach of a term of the 2005
agreement, whether express or "missing."
In sum, the parties' 2005 choice-of-law agreement about
the law to be applied in construing and enforcing the 2005 agreement
does not apply to a duty that, the jury found, arose outside of that
agreement. And while Alpha argues that the jury's verdict seems
hard to reconcile with the facts, Alpha has filed no cross-appeal
challenging either the jury instructions or the jury's finding on
the quasi-contract claim, and so we must accept that finding of
liability as a given.
Anticipating that we might find that the choice-of-law
provision in the 2005 agreement does not directly apply to Dinan's
quasi-contract claim, Alpha advances two arguments for applying the
choice-of-law agreement indirectly. First, it argues that because
quasi-contract claims are a type of contract claim, we should apply
to the quasi-contract claim the same choice of law that the parties
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agreed would apply to a claim for breach of the 2005 agreement.
While we agree with Alpha that a quasi-contract claim shares much
in common with a breach of contract claim, see Paffhausen v. Balano,
708 A.2d 269, 271 n.3 (Me. 1998), it does not follow that a choice-
of-law clause in the 2005 agreement must therefore apply to any
issues arising under the quasi-contract claim. For example, even
if parties have two actual contracts, only one of which has a
choice-of-law clause concerning its enforcement, there is no reason
simply to assume that the choice-of-law clause also applies to the
second contract. Instead, we would likely infer that the parties
left out such a clause in the second contract because they did not
want it. Here, similarly, given the fact that the parties did not
agree to a broad choice-of-law clause covering all dealings they
might have, it makes sense to infer just the opposite of what Alpha
would have us infer.
Second, Alpha also points to decisions that apply
contractual choice-of-law provisions to non-contract claims that are
related to a contract brought by one party to the contract against
the other. See Ne. Data Sys., Inc. v. McDonnell Douglas Computer
Sys. Co., 986 F.2d 607, 610 (1st Cir. 1993) ("[W]hen parties agree
that 'contract related' claims will be tried under, say, the law of
California, they do not mean that a claim of 'serious' or
'rascal-like' breach of contract will be tried under . . .
Massachusetts [General Laws Chapter 93A]."); Stonyfield Farm, Inc.
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v. Agro-Farma, Inc., 08-CV-488, 2009 WL 3255218 at *6 (D.N.H. Oct.
7, 2009) (applying contractual choice-of-law provision to tort
claims predicated on breach of contract). It is precisely this
argument that tipped the balance (albeit with "some hesitation") for
the able district court judge. Dinan v. Alpha Networks Inc., 957
F. Supp. 2d 44, 55 (D. Me. 2013). If Dinan's claim called for
enforcing obligations arising from the terms of the 2005 agreement
(even using non-contract theories), this argument would get to first
base. Here, though, the obligation being enforced would have
existed even had there never been a contract. In other words, while
the concept of quasi-contract liability is certainly related to the
concept of liability for breach of contract, the specific implied
agreement found to exist here does not rest on the 2005 agreement
between the parties that is the sole subject of the choice-of-law
clause. It is, in short, not a "breach-of-the-2005-agreement-plus"
claim; it is an "even-though-no-breach-of-the-2005-agreement" claim.
Having thus rejected the argument that the 2005 agreement
resolves the choice-of-law issue, we must look elsewhere to
determine what law applies to enforcing the free-standing, implied
obligation upon which the jury rested its verdict. Maine law
provides no certain answer. While we might therefore certify the
question to Maine's Law Court pursuant to Maine Revised Statutes
title 4, section 57, neither party so requests, the case has already
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once taken such a detour to resolve a question of state law,1 and
our analysis, described below, leaves us sufficiently confident that
our own answer accurately predicts how the Law Court would resolve
this question.
To determine what state's law applies to enforcing the so-
called quasi-contract, Dinan points to section 196 of the
Restatement (Second) of Conflict of Laws (1971), which states:
The validity of a contract for the rendition of services
and the rights created thereby are determined, in the
absence of an effective choice of law by the parties, by
the local law of the state where the contract requires
that the services, or a major portion of the services, be
rendered, unless, with respect to the particular issue,
some other state has a more significant relationship
under the principles stated in § 6 to the transaction and
the parties, in which the event the local law of the
other state will be applied.
Comment b to section 196 explains further that:
The importance in the choice-of-law process of the place
where the services, or a major portion of the services,
are to be rendered . . . enjoys greatest significance
when the work is to be more or less stationary and is to
extend over a considerable period of time. This is true
of a contract for employment on the ordinary labor force
of a particular factory. By way of contrast, the place
where the services are to be rendered is of lesser
importance when the services are to be of relatively
brief duration, such as when a workman is employed to do
a minor repair job in a given state, or when the
employee's duties will require him to travel with fair
frequency between two or more states.
1
The district court certified to the Law Court the question
of whether Maine's wage payment statute, Me. Rev. Stat. tit. 26, §
626, is applicable to quasi-contract damages. See Dinan v. Alpha
Inc., 60 A.3d 792 (Me. 2013).
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Maine has not expressly adopted section 196, but there is
no reason to think it would not look to section 196 in the absence
of any Maine precedent to the contrary. See Schroeder v. Rynel,
Ltd., 720 A.2d 1164, 1166 (Me. 1998) (collecting "past [Maine]
decisions favoring the use of the Restatement to resolve choice of
law disputes").
Alpha does not directly respond to Dinan's reliance on
section 196. Indeed, it does not even mention section 196 in its
brief. It does argue in a footnote, however, that although Dinan
made his calls from his home in Maine, Alpha performed its
obligations from California. Section 196, though, looks primarily
to where the party rendering services renders those services, not
to where the party paying for the services operates.
We recognize that section 196 applies to contracts, making
no mention of quasi-contracts. However, Maine law (pursuant to
which we undertake this conflict-of-law inquiry, see, e.g., Butler
v. Balolia, 736 F.3d 609, 612 (1st Cir. 2013)) recognizes that
quasi-contract claims "involve[] recovery for services or materials
provided under an implied contract." Paffhausen v. Balano, 708 A.2d
269, 271 (Me. 1998). While a quasi-contract involves no actual
agreement, the parties here bear the same relationships to Maine and
California, and have behaved toward each other, for the most part,
as they would have if they had a contract governing payment of
commissions for 2009 and 2010. Nor is there any other section of
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the Restatement more applicable to a quasi-contract claim than
section 196. In short, the logic underlying section 196 supports
the application of the same principles to quasi-contract clams.
We have also reviewed the record as a whole, noting that
Dinan's customers were mostly or entirely located outside of Maine.
There is no indication, though, that services were rendered more
frequently in any of those states than they were from Dinan's home
base in Maine. Indeed, Dinan presented uncontested testimony that
"most of [his] work and time was spent in Maine." To the extent
that the applicability of section 196 is nevertheless unclear in
this oddly posed case, the very nature of Maine substantive law
aligns with section 196's focus on the place where services are
rendered by the employee. Maine's wage payment law, Me. Rev. Stat.
tit. 26, § 626, manifests on its face a legislative intent to
protect employees from employers who fail to pay wages. We doubt
that Maine's highest court would find that a company procuring
services from a Maine resident performed mostly in Maine can avoid
compliance with Maine's fair wage laws merely because the company
procuring the services conducts its own operations outside of Maine.
For all of the foregoing reasons, we find that Maine
substantive law governs enforcement of the quasi-contractual
relationship found to exist between the parties in 2009 and 2010.
B. Pre-Judgment Interest on Liquidated Damages
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Dinan has preserved for review his argument, rejected by
the district court, that prejudgment interest should be calculated
on the basis of his entire judgment for unpaid wages and liquidated
damages, rather than just on the basis of the unpaid wages. The
wage payment statute itself states that:
An employer found in violation of this section is liable
for the amount of unpaid wages and, in addition, the
judgment rendered in favor of the employee or employees
must include a reasonable rate of interest, an additional
amount equal to twice the amount of those wages as
liquidated damages and costs of suit, including a
reasonable attorney's fee.
Me. Rev. Stat. tit. 26, § 626.2 Section 626-A, which governs
generally penalties for violating a number of statutory rules
governing the payment of wages, including section 626, contains
almost identical language.3 This formulation implies, but by no
means dictates, that interest is assessed first, before adding
2
In answering the district court's certified question, the
Law Court held that section 626 is applicable to quasi-contract
damages if "the services rendered . . . are of the type for which
an employee would have been due wages." Dinan, 60 A.3d at 797.
Alpha does not dispute on appeal that the district court was
correct to conclude that section 626 therefore applies to Dinan's
quasi-contract damages.
3
Specifically it reads in relevant part:
Upon a judgment being rendered in favor of any employee
or employees, in any action brought to recover unpaid
wages or health benefits under this subchapter, such
judgment includes, in addition to the unpaid wages or
health benefits adjudged to be due, a reasonable rate of
interest, costs of suit including a reasonable attorney's
fee, and an additional amount equal to twice the amount
of unpaid wages as liquidated damages.
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liquidated damages. On the other hand, Maine's general prejudgment
interest statute, Me. Rev. Stat. tit. 14, § 1602-B(1)-(3), provides
broadly, with limited exceptions not here applicable, for
prejudgment interest in civil actions, and refers to interest on the
judgment, not a portion of the recovery making up the judgment.
The issue thus posed is whether the general rule of
section 1602-B is trumped by the implied limitation one might, but
need not, infer from the language of sections 626 and 626-A. The
district court found that sections 626 and 626-A did indeed limit
an award of prejudgment interest to the actual damages portion of
the judgment, and that this implied limitation, rather than the
general rule of section 1602-B, controlled. On balance, we
disagree.
Chronology guides our analysis. Section 1602-B (formerly
section 1602) contains the background rule that predated the current
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version of 626 and entirely predated section 626-A.4 It is
structured as a general rule that applies to all actions other than
certain actions expressly excepted. It applies as well to all
damages, even punitive damages. See Haworth v. Feigan, 623 A.2d
150, 159 (Me. 1993). Sections 626 and 626-A, as thereafter enacted,
contain no language expressly indicating any intention to create a
new exception to the general rule. Furthermore, when the
legislature later amended section 1602-B to add, in section 1602-
B(1), a new exception to the general rule (for small claims actions)
4
Prior to 1975, section 626 read simply:
Any employee, leaving his or her employment, shall be
paid in full within a reasonable time after demand at the
office of the employer where payrolls are kept and wages
are paid. Whoever violates any of the provisions of this
section shall be punished by a fine of not less than $25
nor more than $50.
1975 Me. Laws 724. In 1975 section 626 was revised to add the
language about prejudgment interest that it contains today. Also
in 1975, section 626-A was first enacted containing the same
language about prejudgment interest that it contains today. At
that time section 1602 read:
In all civil actions, except those actions involving a
contract or note which contract or note contains a
provision relating to interest, interest shall be
assessed from the date on which the complaint is filed in
court, provided that if the prevailing party at any time
requests and obtains a continuance for a period in excess
of 30 days and the losing party at no time requests and
obtains a continuance, interest will be assessed from the
time of entry of judgment. From and after date of
judgment, interest shall be allowed at the rate of 10%
per year.
Me. Rev. Stat. Ann. tit. 14, § 1602 (West 1972).
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and, in section 1602-B(5), a provision that allows a trial court to
waive prejudgment interest for good cause, it did not add an
exception covering wage payment claims or liquidated damages. Of
course, an alternative reading of this chronology is possible. One
could argue that the legislature, in amending section 1602-B, did
exempt liquidated damages in wage payment actions because it
regarded section 626 as already creating such an exemption. Such
an argument, though, places a great deal of weight on the notion
that, merely by listing interest second in the litany of remedies,
section 626 created such a new--and unusual--exemption from a long-
standing general rule. It seems unlikely, too, that merely by
adding interest to the list of remedies available in wage payment
actions the legislature intended to subtract from the scope of the
remedies independently available under section 1602-B. We think it
more likely that in enacting section 626-A, the legislature focused
on section 626-A, and wanted to be sure interest was available.
Our conclusion finds more support, albeit indirectly, in
Avery v. Kennebec Millwork, Inc., 861 A.2d 634 (Me. 2004). Avery
addressed an analogous issue: Might one infer from section 626's
grant of interest at a "reasonable rate" an exception to
section 1602-B(3)'s general rule providing for a particular (and
relatively high) rate ("the one-year United States Treasury bill
rate plus 3%")? The Law Court answered "no," finding the general
rule of section 1602-B controlling. Id. at 636. Even more
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significantly, in so ruling the Law Court stressed that
section 1602-B "applies to all civil actions except [the listed
exceptions]," and that an action under section 626 is a "civil
action." Id. at 636 (emphasis in original). And while the Law
Court did not expressly address the question posed here, it did
expressly and without qualification order that "the clerk . . .
should calculate the interest on the judgment . . . in accordance
with 14 M.R.S.A. § 1602-B." Id. The judgment included both
compensatory and liquidated damages. In short, even without
prompting by the parties, or the trial court (which itself appeared
to have assessed interest on only the actual wages, id. at 636 n.2),
the Law Court in Avery nevertheless appears to have presumed that
in a wage payment action interest is calculated under § 1602-B based
on the entire judgment, including all damages.
More generally, Maine recognizes that one purpose of
prejudgment interest is to "encourage[] the defendant to conclude
a pretrial settlement of [a] clearly meritorious suit[]." Jasch v.
Anchorage Inn, 799 A.2d 1216, 1219 (Me. 2002) (internal quotation
marks omitted). Prejudgment interest furthers this purpose by
reducing the benefit of delay to a defendant (and simultaneously
preserves the real economic value of the entire claim). This
purpose is undercut if prejudgment interest runs only on part of the
judgment.
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Finally, even if section 1602-B controls, the trial court
still retains the discretion to waive prejudgment interest on all
or part of the judgment. See § 1602-B(5) ("On petition of the
nonprevailing party and on a showing of good cause, the trial court
may order that interest awarded by this section be fully or
partially waived."). Familiar with how and why a case went to
trial, the respective positions of the parties, and the size of the
liquidated damages, a trial judge can exercise this discretion to
eliminate any actual unfairness from the availability of prejudgment
interest on liquidated damages in any particular case.
Confident enough in the foregoing analysis to reverse the
contrary ruling of the district court, we nevertheless make no claim
that the correct answer is clear. To the contrary, we considered
certifying the issue to the Law Court, deciding not to do so because
no party so requested, the case has already traveled that route
once, and we do not want the tail to wag the dog as the plaintiff
still awaits receipt of even his wages. Certainly nothing in our
decision can prevent Maine's courts from settling on a different
answer in the many wage payment claims that come before them. Until
and unless Maine's courts so conclude, however, our best judgment
is that prejudgment interest applies, as in Avery, to the judgment.
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IV. Conclusion
For the foregoing reasons we vacate the judgment of the
district court and remand the case for further proceedings
consistent with this opinion. Costs are awarded to Dinan.
So ordered.
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