
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                                         -2-                                         -2-            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                                         -3-                                         -3-                 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.                                         -4-                                         -4-                 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                                                                ____                                         -5-                                         -5-            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                                    ____     _______________________                                         -6-                                         -6-            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).                                         -7-                                         -7-                 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            _______                                         -8-                                         -8-            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.                                         -9-                                         -9-            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.                                         -10-                                         -10-                 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).            _______                                         -11-                                         -11-                 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.                 ________                                         -12-                                         -12-
