Dahua Technology USA, Inc. v. Zhang

United States Court of Appeals
For the First Circuit
Nos. 20-1107, 20-1338
DAHUA TECHNOLOGY USA INC.,
Plaintiff, Appellee/Cross-Appellant,
v.
FENG ZHANG,
Defendant, Appellant/Cross-Appellee.
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Rya W. Zobel, U.S. District Judge]
Before
Lynch, Lipez, and Barron,
Circuit Judges.
Daniel E. Rosenfeld, with whom Jennifer C. Brown and DLA Piper
LLP were on brief, for appellee/cross-appellant.
Benjamin Flam, with whom Philip J. Gordon and Gordon Law Group
LLP were on brief, for appellant/cross-appellee.
February 17, 2021
LYNCH, Circuit Judge. This case involves a contract
dispute under Massachusetts law between Dahua Technology USA Inc.
("Dahua") and Feng Zhang, a former employee of Dahua. Zhang says
that Dahua breached its release agreement with him by paying him
$680,000 in total instead of $680,000 a month. Dahua says that
the agreement contains a mistake and that Zhang has breached his
duty of good faith and fair dealing by trying to take advantage of
this mistake. The district court granted summary judgment in favor
of Dahua but did not award it attorneys' fees. Zhang appeals from
the grant of summary judgment. Dahua cross-appeals from the denial
of attorneys' fees. We vacate the grant of summary judgment
because there are material facts in dispute and remand.
I. Facts
Dahua is an Irvine, California based company with an
office in Massachusetts. It manufactures and sells video
surveillance equipment and is the United States subsidiary of
Zhejiang Dahua Technology Co., Ltd., a Chinese company.
On November 5, 2015, Dahua offered Zhang the position of
Chief Strategy Officer, Vice President, and President of North
American and Enterprise Sales. Dahua's offer to Zhang said that
he would be paid $510,000 a year, receive 100,000 shares of Dahua
stock on his start date, January 1, 2016, and serve for a term of
three years. It said that if Dahua terminated Zhang for cause
(other than illegal conduct or company misconduct), Zhang would be
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entitled to payment of his salary through his three-year term.
The offer contained no non-compete clause, confidentiality
provision, non-disparagement clause, or release of claims. Zhang
accepted this offer.
In August 2017, Dahua decided to terminate Zhang. Liquan
Fu, the founder and chairman of Dahua, said that Zhang was fired
because Dahua's North American business declined under Zhang's
leadership and because Zhang had damaged relationships with
Dahua's other divisions. The decision was made by a team of senior
leaders at Dahua, including Fu and Dahua's then-president and chief
executive officer, Li Ke. Dahua's general counsel asked Haiyan
Yue, a member of Dahua's internal legal department, to draft a
separation agreement for Zhang. On August 23, 2017, Yue asked
Cathryn Le Regulski, Dahua's Virginia-based outside counsel, for
assistance drafting the agreement. They began working on a draft.
Dahua also drafted a strategy document in preparation
for its negotiation with Zhang. One bullet point said that the
"baseline" of his severance package should include "[s]alary,
bonus and other benefits from the date of termination to the end
of [Zhang's] term" and "[a]dditional compensation to entice
[Zhang] to release all claims against Dahua." Another said that
Zhang "might act as a whistleblower and blow the whistle on
vulnerabilities of [Dahua's] products or operations, which may
cause damage." It listed specific areas where it was concerned
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Zhang could act as a whistleblower: Dahua's market strategy,
Dahua's "[g]rey area of sales strategy," and Dahua's "compliance
with laws [or] regulations."
In August 2017, Fu travelled from China to Boston for
the sole purpose of informing Zhang of his termination and
negotiating the specific terms of his separation agreement. When
Fu arrived in Boston, Zhang picked him up at the airport and drove
him to his hotel. Zhang said that, during the car ride, Fu told
him that Dahua was considering replacing him. They agreed to talk
more the next day. Because Fu does not speak English, Zhang and
Fu spoke in Mandarin Chinese.
The next morning, Zhang met Fu at his hotel. Zhang said
that he and Fu discussed Zhang's future role at the company. They
agreed that Zhang would leave his current role but stay on as a
corporate advisor for two years. They agreed that Zhang would be
paid $240,000 a year in this new role. According to Zhang, he was
employed as an advisor to the company because Dahua needed his
experience, expertise, and knowledge. According to Fu, Dahua did
not have much work for Zhang to do and viewed the consulting
agreement as compensation for Zhang's termination.
Zhang also said that Fu told him he would "take care of"
Zhang's existing contract and company stock, "treat [him] well,"
and that Zhang would need to sign a new agreement. They did not
discuss specific dollar amounts regarding Zhang's compensation for
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the time remaining on his employment agreement or the 100,000
shares of company stock he owned. Zhang said Fu then made a long
phone call and, when he returned, told Zhang that they were "all
set."
Zhang and Fu then went to Dahua's office in Waltham,
Massachusetts. Yue and Le Regulski incorporated the consulting
agreement Zhang and Fu had discussed into Zhang's separation
package. They produced multiple iterations of two documents: a
separation agreement and a consulting agreement. At least five
different versions of the separation agreement exist in the record,
and it is unclear which version Yue and Fu ultimately presented to
Zhang.
The terms of the separation agreement changed
meaningfully from version to version. One version said Dahua would
"pay [Zhang] an amount equal to the value of the appreciation of
100,000 shares of common stock of [Dahua] from January 1, 2017 to
August 28, 2017." Another version instead said that Zhang "agreed
to relinquish any and all rights that [he has] or may have with
regard to the stocks of [Dahua]." At one point, Yue asked Le
Regulski if she could include a sentence in the agreement saying
that Zhang "will be awarded 100,000 shares of [Dahua] common
stock." Zhang says that 100,000 shares of Dahua stock, which is
publicly traded, were worth $942,803 in August 2017. There are
also emails from Yue to Le Regulski asking her to include
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additional terms that do not appear in any of the separation
agreements in the record.
Zhang said that in the separation agreement he was given,
Dahua offered to pay him $680,000 total for the remaining sixteen
months on his employment contract. He also said it contained a
sixteen-month non-compete clause, a confidentiality clause, a non-
disparagement clause, a release of claims against Dahua, and a
paragraph saying that if Zhang breached the agreement, Dahua could
claw back all payments it made under the agreement. The versions
of the separation agreement in the record contain most of these
terms. Zhang also said that in the consulting agreement he
rejected, Dahua offered to employ Zhang as an at-will consultant
for two years and pay him $240,000 a year.
Zhang refused to sign these agreements. He said he
rejected the consulting agreement because Fu had promised him a
two-year agreement and he did not want his employment to be at
will. He said that he rejected the separation agreement because
he was already entitled to $680,000 with no additional restrictions
under his original employment agreement with Dahua.1 Zhang said
he never told anyone at Dahua how much money he wanted in exchange
for accepting the restrictions in the separation agreement.
1 In Zhang's original contract, Dahua agreed to pay him
$510,000 a year (or $42,500 a month) for three years. Sixteen
months remained on his contract, and sixteen months at $42,500 a
month is $680,000.
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However, he said after he rejected the offer he told Lynette Lv,
who worked in human resources at Dahua, that without the
confidentiality agreement he would write a business case study
based on his time at Dahua and sell it for millions of dollars.
After Zhang rejected the package, Yue and Le Regulski
discussed changes to Dahua's offer over the phone. In an email
memorializing their conversation, Yue said that Zhang and Fu had
agreed "on the spot" that Zhang would remain an employee of the
company with the title of senior corporate advisor for two years.
Because of this change, Le Regulski said that Zhang would have to
sign a release agreement rather than a separation agreement and
sent a draft release agreement to Yue.
Unlike the draft separation agreement, the draft release
agreement Le Regulski sent included a blank space for Yue to fill
in. It read: "[T]he Company agrees to make monthly severance
payments to you in the amount of $ _____ for sixteen (16) months."
Yue typed "680,000" into this blank space. She said that the
wording in the draft release agreement was different than the
wording in the draft separation agreement and that she typed
"680,000" by mistake. In all versions of the draft separation
agreement, the severance clause read: "the Company agrees to make
severance payments to you in the form of continuation of your base
salary in effect on the Separation Date for sixteen (16) months."
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The release agreement included other notable terms. It
included a non-compete clause, a non-disparagement clause, a
confidentiality clause, and a release of claims against Dahua.
Zhang also agreed to surrender all of his rights to Dahua stock,
and the agreement gave him the option of accelerating his severance
payments by collecting them in a lump sum.
Unlike Zhang's consulting agreement, which chose
Massachusetts law, the release agreement chose Virginia law. When
asked why Virginia law was chosen, Le Regulski said she did not
recall. During the drafting process, Qiang Li, a partner at Le
Regulski's law firm, sent Yue and Le Regulski an email asking them
if there was "[a]ny reason we are using Virginia law." Neither
Yue nor Le Regulski responded. Yue later said that, after
receiving Li's email, she realized that she had forgotten to change
the choice-of-law provision in the template Le Regulski had sent
her.
Yue and Fu presented the release agreement to Zhang.
They did not explain any of the changes to him. Zhang said that
before signing the agreement he read all of its terms. He did not
discuss the new terms with anyone, including Fu or Yue. Fu signed
the agreement on behalf of Dahua in front of Zhang. Zhang signed
the release after Fu. Fu said he did not read the document before
he signed it and did not have it translated from English to
Chinese.
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Dahua paid Zhang $62,500 a month for the next four
months. According to Dahua, the $62,500 reflected $20,000 a month
from Zhang's senior consultant role and $42,500 a month (i.e.,
$680,000 divided by sixteen months) from the release agreement.
During this period, Zhang did not tell anyone at Dahua that he was
receiving only $62,500 a month instead of the $700,000 a month he
believed he was supposed to be receiving under the written terms
of his severance package. He said he did not complain to Dahua
because Dahua had a history of paying him late. For example, he
said that in 2016, Dahua paid him only $200,000 of the $510,000 it
owed him and that it did not pay him the remaining $310,000 until
2017.
In November 2017, at Fu's request, Zhang travelled to
Beijing. There, Fu paid Zhang 1.6 million yuan (approximately
$240,000) in cash. Zhang said that he understood this payment to
cover the appreciation on the value of the 100,000 shares of Dahua
stock he had received under his 2015 employment agreement.2 He
did not consider it to be full compensation for the stock Dahua
had given him in 2015.
2 The documents Zhang signed did not obligate Dahua to
make this payment. An earlier, unsigned draft of the separation
agreement said that Zhang would be compensated for the appreciation
of his stock. The agreement the parties ultimately signed said
that Zhang "agree[d] to relinquish any or all rights . . . with
regard to the stocks of [Dahua]." Nevertheless, both Zhang and
Dahua say that there was an agreement that Zhang would receive a
cash payment related to his stock.
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In January 2018, Dahua notified Zhang that it was ending
its consulting arrangement with him. It sent him a draft
separation agreement saying that Dahua would pay him a lump sum of
$910,000.3 Zhang refused to sign the agreement and, under the
acceleration clause in the August 2017 release agreement,
requested that Dahua pay him the amount they had agreed to. He
said that Dahua owed him over $11 million.
II. Procedural History
Dahua filed a complaint against Zhang on May 31, 2018.
It sought a declaratory judgment that the August 2017 agreement
was unenforceable and asked the court to reform it because the
parties had made a mutual mistake. It also sought damages against
Zhang for breaching the contract's implied covenant of good faith
and fair dealing. Zhang counterclaimed, alleging that Dahua
breached the August 2017 contract.
Zhang filed a motion for summary judgment on May 9, 2019,
and Dahua filed its own motion for summary judgment on June 10,
2019. The district court granted Dahua's motion and denied
Zhang's. Applying Massachusetts law, it held that there was "no
genuine dispute that a unilateral, if not mutual, mistake permeated
the 2017 severance agreement" and that Zhang breached the
3 This amount represented the money Dahua says it still
owed Zhang under the August 2017 agreement (i.e., $510,000 for the
year remaining on the release agreement plus $400,000 for the year
and eight months remaining on his consulting agreement).
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agreement's implied covenant of good faith and fair dealing. Dahua
Tech. USA, Inc. v. Zhang, 433 F. Supp. 3d 41, 47 (D. Mass. 2020).
It reformed the release agreement to "provide for a $680,000 total
severance payment, in sixteen monthly installments of $42,500."
Id. In a later order, it denied Dahua's request for damages in
the form of attorneys' fees.
Zhang appeals from the district court's order granting
Dahua's motion for summary judgment and denying his own, and Dahua
cross-appeals the district court's denial of attorneys' fees.
III. Analysis
Zhang argues that the district court erred when it
applied Massachusetts law instead of Virginia law to the release
agreement. He also argues that the district court did not view
the evidence in the light most favorable to him and that genuine
disputes of fact precluded summary judgment in Dahua's favor.
We review a district court's choice-of-law determination
and grant of summary judgment de novo. Robidoux v. Muholland, 642
F.3d 20, 22 (1st Cir. 2011). When, as here, there is "an appeal
from cross-motions for summary judgment, the standard does not
change; we view each motion separately and draw all reasonable
inferences in favor of the respective non-moving party." Roman
Cath. Bishop of Springfield v. City of Springfield, 724 F.3d 78,
89 (1st Cir. 2013) (citing OneBeacon Am. Ins. Co. v. Com. Union
Assurance Co. of Can., 684 F.3d 237, 241 (1st Cir. 2012)).
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A. Choice of Law
Zhang first argues that, because the release agreement
says that Virginia law governs the agreement, the district court
should have applied Virginia law. He says that Virginia law is
more favorable to him in two ways: (1) it would require Dahua to
allege fraud as an element of its unilateral mistake defense; and
(2) it does not recognize an independent claim for breach of the
agreement's implied duty of good faith and fair dealing.
Because this is a diversity case, we apply
Massachusetts's choice-of-law rules. See Levin v. Dalva Bros.,
Inc., 459 F.3d 68, 73 (1st Cir. 2006). When "the parties have
expressed a specific intent as to the governing law, Massachusetts
courts will uphold the parties' choice as long as the result is
not contrary to public policy." Oxford Glob. Res., LLC v.
Hernandez, 106 N.E.3d 556, 564 (Mass. 2018) (quoting Hodas v.
Morin, 814 N.E.2d 320, 324-25 (Mass. 2004)). To determine if a
choice-of-law provision is against public policy, Massachusetts
follows the Restatement (Second) of Conflict of Laws. See id. It
will not uphold the parties' choice if: "(a) the chosen state has
no substantial relationship to the parties or the transaction and
there is no other reasonable basis for the parties' choice, or (b)
application of the law of the chosen state would be contrary to a
fundamental policy." Restatement (Second) of Conflict of Laws
§ 187(2) (Am. Law Inst. 1971).
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The district court held that the choice-of-law provision
was ineffective because Virginia has no substantial relationship
to the parties or the transaction. See Dahua, 433 F. Supp. 3d at
45. Zhang says the district court erred in its analysis of
§ 187(2)(a) because the agreement has a substantial relationship
to Virginia and because the court did not consider whether there
was another reasonable basis for the agreement's choice of Virginia
law. If the court did not err in its conclusion under § 187(2)(a),
he does not argue that under normal Massachusetts choice-of-law
rules there was any error in applying Massachusetts law.
First, Zhang says that Dahua had a reasonable basis for
choosing Virginia law because that term was included in the
contract drafted by Dahua. The fact that the release agreement
recited Virginia law is no more than a prerequisite to applying
§ 187. See Restatement (Second) of Conflict of Laws § 187 cmt. a
(Am. Law Inst. 1971) ("The rule of this Section is applicable only
in situations where it is established to the satisfaction of the
forum that the parties have chosen the state of the applicable
law."). The fact that the agreement recites Virginia law is not
itself a reasonable basis as that term is used under § 187(2)(a).
Reading the Restatement as Zhang does would make § 187(2)(a)
impossible to satisfy because every recitation in an agreement of
choice of law would automatically be reasonable.
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The other arguments that there was a substantial
relationship to Virginia or reasoned basis for using Virginia law
are not supported by the record. Zhang says that Le Regulski gave
reasons for Dahua's choice of Virginia law in her deposition. But
she only explained that the choice of law "depends on what the
circumstances are." She never gave a reason for why the release
agreement referenced Virginia law. She said she does not recall
whether the term was discussed or why it was included. Next, Zhang
says that Li's email asking why the release agreement chose
Virginia law shows that the provision was "discussed and
considered" and that the fact that Le Regulski is based in Virginia
creates a substantial relationship with Virginia. But again, there
is no evidence that there was any discussion or consideration of
Virginia law. The email -- which neither Le Regulski nor Yue
responded to -- instead indicates that Dahua's own lawyers did not
know why Virginia law was included and did not choose it because
Le Regulski was based in Virginia. Indeed, Yue said that, after
receiving Li's email, she learned for the first time that the
release agreement referred to Virginia law. She said the only
reason the agreement referred to Virginia law was because she
forgot to change the template Le Regulski had sent her. Finally,
Zhang says that the fact that the consulting agreement chose
Massachusetts law and the release agreement chose Virginia law
shows that Dahua had a reason for choosing Virginia law in the
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release agreement. But he does not say what that reason was, and
this fact is consistent with the only indication in the record of
why Dahua chose Virginia law -- Yue's statement that she forgot to
change the provision in the release agreement.
Zhang said that he himself had no basis to choose
Virginia law. He does not have any evidence or argument that he
wanted Virginia law to apply. He said that when he was presented
with the release agreement, the fact that it said that "Virginia
law applies, for [him], . . . doesn't matter."
Where the record evidence shows no substantial
relationship to Virginia and no other reasonable basis for the
agreement's reference to Virginia law, § 187(2)(a) directs that
the agreement's language about Virginia law not be effectuated.
In these circumstances, the diversity court must conduct
the choice-of-law analysis of the forum state. Massachusetts takes
a functional approach to choice of law. Cosme v. Whitin Mach.
Works, Inc., 632 N.E.2d 832, 834 (Mass. 1994). No party argues
that if the contract's choice-of-law provision is not enforced,
the law of some state other than Massachusetts should apply. For
the reasons stated by the district court, see Dahua, 433 F. Supp.
at 45, Massachusetts law governs.
B. Dahua Did Not Waive Its Unilateral Mistake Defense
Next, Zhang argues that Dahua waived its unilateral
mistake defense. Dahua responds that it was Zhang who waived any
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such argument that Dahua had waived by not raising it before the
district court. We agree with Dahua.
"Courts are entitled to expect represented parties to
incorporate all relevant arguments in the papers that directly
address a pending motion." Mancini v. City of Providence ex rel.
Lombardi, 909 F.3d 32, 46 (1st Cir. 2018) (quoting McCoy v. Mass.
Inst. of Tech., 950 F.2d 13, 22 n.7 (1st Cir. 1991)).
Zhang failed to raise his waiver argument in his
opposition to Dahua's motion for summary judgment or in his own
motion for summary judgment. Instead, he directly responded to
Dahua's unilateral mistake defense in these motions. The only
time Zhang argued that the unilateral mistake defense had been
waived was at the very end of the district court's hearing on the
parties' motions for summary judgment. He devoted only five
sentences to the argument and cited no legal authority. In these
circumstances, Zhang's argument was not enough to preserve the
issue.
C. Disputed Issues of Material Fact Preclude Entry of Summary
Judgment in Favor of Dahua or Zhang
Both Dahua and Zhang moved for summary judgment before
the district court. Zhang appeals both the district court's grant
of Dahua's motion and its denial of his motion. When reviewing
cross-motions for summary judgment, "we must decide 'whether
either of the parties deserves judgment as a matter of law on facts
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that are not disputed.'" Fidelity Co-op. Bank v. Nova Cas. Co.,
726 F.3d 31, 36 (1st Cir. 2013) (quoting Barnes v. Fleet Nat'l
Bank, N.A., 370 F.3d 164, 170 (1st Cir. 2004)). We review each
motion independently, see Matusevich v. Middlesex Mut. Assurance
Co., 782 F.3d 56, 59 (1st Cir. 2015), and view the record "in the
light most favorable to the nonmoving party" when doing so, Donahue
v. Fed. Nat'l Mortg. Ass'n, 980 F.3d 204, 207 (1st Cir. 2020).
The contract defenses of mutual mistake and unilateral
mistake are common to both parties' motions. Under Massachusetts
law, to successfully reform a contract based on a mistake defense,
"a party must present full, clear, and decisive proof of mistake."
Polaroid Corp. v. Travelers Indem. Co., 610 N.E.2d 912, 917 (Mass.
1993); see also Nissan Autos. of Marlborough, Inc. v. Glick, 816
N.E.2d 161, 165 (Mass. App. Ct. 2004); LaFleur v. C.C. Pierce Co.,
496 N.E.2d 827, 833 n.10 (Mass. 1986) (quoting Kidder v. Greenman,
187 N.E. 42, 48 (Mass. 1933)).
To assert a mutual mistake defense, a party must show
that (1) the contract contained a mistake when it was made; (2)
the mistake is shared by both parties; (3) the mistake relates to
an essential element of the bargain; and (4) the party raising the
defense did not bear the risk of mistake. See LaFleur, 496 N.E.2d
at 830-31; Restatement (Second) of Contracts § 152 (Am. Law Inst.
1981).
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In contrast, asserting a unilateral mistake defense
requires a party to show that (1) the contract contained a mistake
when it was made; (2) one party made the mistake; (3) the mistake
relates to an essential element of the bargain; (4) the party
raising the defense did not bear the risk of mistake; and either
(5)(a) the effect of the mistake makes the contract unconscionable
or (5)(b) the party not raising the defense had reason to know of
the mistake or caused the mistake. See Nissan, 816 N.E.2d at 166;
Restatement (Second) of Contracts § 153 (Am. Law Inst. 1981).
1. The District Court Erred in Granting Summary Judgment to
Dahua
First, we address Zhang's appeal of the district court's
grant of summary judgment to Dahua. Because Zhang is the non-
movant, we view the facts in the light most favorable to him. See
Donahue, 980 F.3d at 207. We hold that, on this record, there are
at least three triable issues of fact: whether Dahua made a mistake
(informing whether any mistake defense is viable), whether Zhang
made a mistake (informing whether a mutual mistake defense is
viable), and, if only Dahua was mistaken, whether Zhang knew or
should have known of Dahua's mistake (informing whether a
unilateral mistake defense is viable). Because of these issues of
fact, a reasonable jury could conclude that Dahua's unilateral and
mutual mistake defenses both fail and could return a verdict in
favor of Zhang. See Anderson v. Liberty Lobby, Inc., 477 U.S.
- 18 -
242, 248 (1986) (holding that summary judgment is not appropriate
if "the dispute about a material fact is 'genuine,' that is, if
the evidence is such that a reasonable jury could return a verdict
for the nonmoving party").
First, the circumstances of Dahua's negotiation with
Zhang could support a verdict in Zhang's favor. Zhang was a high-
level executive at Dahua and Dahua took its negotiation with him
seriously. The stakes were high enough that Dahua sent its
chairman and founder, Fu, from China to the United States to
negotiate with Zhang in person. The sole purpose of this trip was
to negotiate with Zhang. Indeed, Fu explained that "from the time
when I arrived [in] Boston to the time when I . . . left Boston,
almost any time, day and night, was spent communicating with Mr.
Zhang."
As part of its preparation for this negotiation, Dahua
created a document outlining Zhang's negotiating strengths. It
understood that it would need to provide "additional compensation"
on top of what it owed Zhang under his 2015 contract to get him to
sign an agreement releasing his claims against Dahua and containing
confidentiality and non-compete clauses. Specifically, Dahua was
concerned that Zhang might reveal information that could damage it
or that Zhang might serve as a whistleblower on Dahua's sales
practices or failure to comply with laws and regulations. Based
on Zhang's position at Dahua, a reasonable jury could conclude
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that securing Zhang's compliance with the release agreement's
restrictive clauses was valuable enough to Dahua that it made no
mistake by offering Zhang $680,000 a month. And even if a jury
determined that Dahua did make a mistake, it could reasonably
conclude that Zhang, believing that the confidentiality and non-
compete clauses were important to Dahua, did not make a mistake
and neither knew nor should have known that Dahua had made one.
Next, the record is not clear about the terms of the
first severance agreement Zhang rejected. The parties agree that
Zhang was only ever shown two severance packages -- the one he
rejected and the one he signed. But the record contains many
versions. Zhang was shown multiple iterations of the separation
agreement during his deposition but could not definitively say
which version Dahua presented to him on August 28, 2017. These
agreements contained different terms governing what compensation,
if any, Zhang would receive for his stock. At the time of the
negotiation, Zhang had shares of Dahua that he claims were worth
approximately $942,803. Under one version, Zhang would surrender
all his rights to this stock. Under another, he would receive
compensation only for his stock's appreciation. As reflected in
an email between Yue and Le Regulski, Dahua may even have
considered granting Zhang an additional 100,000 shares of stock.
These drafts provide some evidence that Dahua considered terms
that varied the value of Zhang's severance package by millions of
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dollars. They also raise questions about whether the terms of the
agreement Zhang rejected were better or worse than the terms Dahua
says he later agreed to. The exact terms of the agreement are
relevant to whether Dahua or Zhang were mistaken when they entered
the contract. If only Dahua made a mistake, they are also relevant
to whether Dahua can successfully assert a unilateral mistake
defense because, depending on the terms Zhang rejected, a
reasonable jury could conclude that Zhang did not know and should
not have known that Dahua made a mistake in its second offer.
Zhang's account of the negotiation provides additional
evidence that could support a jury verdict in his favor. He said
that he rejected Dahua's original offer because it treated him
worse than his 2015 employment agreement. After rejecting the
offer, he told a human resources representative that he could make
"millions" by writing about his experience at Dahua, an opportunity
he says he gave up by agreeing to the confidentiality and non-
disparagement terms in the release agreement. Zhang also said
that Fu told him that Dahua would "treat [him] well." Whether
both parties made a mistake, whether only Dahua made a mistake,
and, if so, whether Zhang knew or should have known about it turns
in part on Zhang, Fu, and Yue's differing accounts of the
negotiation. A trier of fact can assess these accounts "based on
credibility and other factors that the district court could not
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weigh on summary judgment," Melo v. City of Somerville, 953 F.3d
165, 171 (1st Cir. 2020), and could find in Zhang's favor.
Finally, in the agreement Zhang signed, he gave up all
the stock he was entitled to under his original employment
agreement. Under Dahua's account of the negotiation, Zhang made
a bad deal. Dahua says Zhang -- shortly after rejecting a deal he
said treated him unfairly -- agreed to give up stock assertedly
worth $942,803 in exchange for a two-year consulting contract
(worth $580,000), a release of all his claims against Dahua, and
additional non-compete, confidentiality, and other conditions that
he would not otherwise be bound by. A reasonable jury could
instead conclude that there was no mistake because Dahua increased
its offer to Zhang and, unlike in the prior drafts where it
adjusted Zhang's compensation via stock, chose to do so by altering
his severance pay. A reasonable jury could also conclude that
Zhang was not mistaken about the contract he agreed to, defeating
Dahua's mutual mistake defense, and that he did not know and should
not have known about any mistake Dahua made, defeating Dahua's
unilateral mistake defense.
Because of the triable issues of fact on this record
that bear on the viability of Dahua's contract defenses, the
district court erred when it granted summary judgment in Dahua's
favor.
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2. The District Court Did Not Err by Denying Zhang's Motion for
Summary Judgment
Turning to Zhang's appeal of the district court's denial
of his motion for summary judgment, we now view the facts in the
light most favorable to Dahua, the non-movant. We hold that a
reasonable jury could find that, for the reasons already given,
Dahua made a mistake and that it could also find either that Zhang
did not know that the agreement he signed said that Dahua would
pay him $680,000 a month (allowing Dahua to succeed on its mutual
mistake defense) or that, if he did notice this term, he knew or
should have known that Dahua had made a mistake (allowing Dahua to
succeed on its unilateral mistake defense). Therefore, the
district court's denial of Zhang's motion for summary judgment was
proper.
Zhang's expectations for Dahua's second severance offer
and his behavior after receiving it could allow a reasonable jury
to find in Dahua's favor. First, as we have explained, it is
unclear from the record how much the initial severance package
Dahua presented to Zhang was worth. Some of the severance packages
in the record were worth significantly more than others. Taking
the facts in the light most favorable to Dahua, a reasonable jury
could conclude that, if Zhang noticed that Dahua increased its
offer to him, the increase was so large that Zhang either knew or
should have known that Dahua had made a mistake. Such a factual
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finding would allow Dahua to prevail on its unilateral mistake
defense.
A reasonable jury could also conclude that Zhang never
even noticed the $680,000 a month term, allowing Dahua to succeed
on its mutual mistake defense. After Dahua presented Zhang with
its original severance offer, the only specific change Zhang
requested was that his consulting arrangement be for a term of two
years rather than at will. He never told anyone at Dahua that he
wanted $680,000 a month to accept the release agreement's terms
and no one at Dahua ever told Zhang that Dahua was increasing the
value of his severance pay. Indeed, Zhang says that after seeing
the large increase in his severance pay in Dahua's second offer,
he never confirmed that Dahua had intended this increase and never
discussed any of the agreement's updated terms with Fu or Yue.
Finally, the issues of who was mistaken and, if only
Dahua was, whether Zhang knew or should have known that Dahua was
making a mistake also turn on Zhang, Fu, and Yue's differing
accounts of the severance negotiation. A jury could assess the
credibility of the witnesses to resolve these issues and reasonably
determine that one of Dahua's mistake defenses succeeds. See id.On this record, because disputed facts, if resolved in
Dahua's favor, could allow either Dahua's mutual or unilateral
mistake defense to succeed, denial of summary judgment in Zhang's
favor was proper.
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D. Dahua's Cross-Appeal
Dahua argues that, after the district court granted its
summary judgment motion and held that Zhang breached the release
agreement, it should have awarded Dahua attorneys' fees as damages
for the breach. Because we vacate the district court's grant of
summary judgment, we dismiss Dahua's cross-appeal as moot. See
DeCambre v. Brookline Hous. Auth., 826 F.3d 1, 20 (1st Cir. 2016)
(citing Bos. Duck Tours, LP v. Super Duck Tours, LLC, 531 F.3d 1,
31 n.31 (1st Cir. 2008)).
IV. Conclusion
The district court's grant of summary judgment in
Dahua's favor is vacated, its denial of summary judgment in favor
of Zhang is affirmed, and Dahua's cross-appeal is dismissed. We
remand for further proceedings consistent with this opinion. No
costs are awarded.
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