
USCA1 Opinion

	




                            UNITED STATES COURT OF APPEALS                            UNITED STATES COURT OF APPEALS                                FOR THE FIRST CIRCUIT                                FOR THE FIRST CIRCUIT                                 ____________________        No. 95-1356                          ORKIN EXTERMINATING COMPANY, INC.                                D/B/A ORKIN LAWN CARE,                                Plaintiff, Appellant,                                          v.                              ARTHUR WALTER RATHJE, III,                                 Defendant, Appellee.                                 ____________________                     APPEAL FROM THE UNITED STATES DISTRICT COURT                          FOR THE DISTRICT OF MASSACHUSETTS                     [Hon. Nancy J. Gertner, U.S. District Judge]                                             ___________________                                 ____________________                                        Before                                  Cyr, Circuit Judge,                                       _____________                            Bownes, Senior Circuit Judge,                                    ____________________                              and Boudin, Circuit Judge.                                          _____________                                 ____________________            Richard P. Decker, with whom David  H. Woodham, Decker &  Hallman,            _________________            _________________  _________________        and  James  E.  Riley,  Jr.,  Of Counsel,  were  on  brief  for  Orkin             ______________________        Exterminating Company, Inc.            Philip  A.  Tracy,  Jr.,  with whom  Paul  T. Prew  and  DiMento &            _______________________              _____________       _________        Sullivan,  were on brief for appellee.        ________                                 ____________________                                  December 20, 1995                                 ____________________                      BOWNES, Senior Circuit Judge.  Plaintiff-appellant,                      BOWNES, Senior Circuit Judge.                              ____________________            Orkin  Exterminating  Company,  Inc.  ("Orkin")   operates  a            nationwide   chemical   application   lawn   care   business.            Defendant-appellee,   Arthur  Walter  Rathje,  III,  was  the            manager  of the  Hingham, Massachusetts,  branch  office from            May, 1987, until  his resignation on April  9, 1993.  In  the            winter of  1992, defendant's  wife created a  business entity            called  "Nature's  Way,"  later  changed  to  "Global  Green"            (collectively  -  Global).     Global  was  in  the  chemical            application lawn care business and operated  in the same area            as did Orkin's Hingham branch.                      On  August 3,  1993, Orkin  sued  defendant, Arthur            Rathje, and his wife,  Karen, on the following grounds:   (1)            defendant, Arthur Rathje, while an employee of Orkin breached            his  fiduciary duty  to  Orkin by  working  for Global  as  a            management  employee; (2) defendant  Arthur Rathje engaged in            unfair  trade  practices  while   an  employee  of  Orkin  in            violation of Mass. Gen.  Laws Ann. ch.  93A   3 (West  1984);            (3)  defendant, Arthur  Rathje, converted  property  owned by            Orkin;  (4)  Karen  Rathje  tortiously  interfered  with  the            business relationship  between defendant, Arthur  Rathje, and            Orkin;  and  (5) Karen  Rathje  converted  property owned  by            Orkin.                      The  case was tried to  a jury and  all claims were            submitted to the jury.  It found in favor of  Karen Rathje on                                         -2-                                          2            all claims against her.  No appeal has been  taken from these            verdicts.   The jury  found for defendant,  Arthur Rathje, on            the conversion claim.   No  appeal has been  taken from  this            verdict.                      The jury could not agree on the breach of fiduciary            duty  claim, nor on the  claim brought under  Mass. Gen. Laws            Ann. ch. 93A.  Both claims had been submitted to  the jury on            an  advisory basis.   With the  acquiescence of  counsel, the            district  court decided  these two  claims.   It is  from the            findings and rulings  of the district  court on these  claims            that Orkin appeals.                               Breach of Fiduciary Duty                               Breach of Fiduciary Duty                               ________________________                      Under  Massachusetts  law,  "[e]mployees  occupying            positions  of trust and confidence  owe a duty  of loyalty to            their  employer  and  must   protect  the  interests  of  the            employer."   Chelsea Indus., Inc. v. Gaffney, 389 Mass. 1, 11                         _______________________________            (1983).   It follows  that "an executive  employee is 'barred            from actively  competing with his employer  during the tenure            of his employment, even in the absence of an express covenant            so providing.'"  Id. at 11-12 (citations omitted).                             ___                      Under  Massachusetts  law  there are  two  remedies            available to an employer  for breach of fiduciary duty  by an            employee.   If the conduct caused  a loss to the employer, it            can recover  as damages the amount of such loss.  Augat, Inc.                                                              ___________                                         -3-                                          3            v.  Aegis,  Inc.,  409 Mass.  165,  175    (1991); Meehan  v.            ________________                                   __________            Shaughnessy; Cohen, 404 Mass. 419, 436 n.14 (1989).            __________________                      The second remedy is forfeiture of compensation  by            the employee  during the period of breach  of fiduciary duty.            An  employee  "can  be  required  to  forfeit  the  right  of            compensation even  absent a showing  of actual injury  to the            employer."  Chelsea Indus., Inc. v. Gaffney, 389 Mass. at 12-                        _______________________________            13.                      We  discuss  the   district  court's  findings  and            rulings seriatim.                    ________                      We  agree with the district court's conclusion that            defendant breached his fiduciary duty  of loyalty to Orkin by            helping his wife operate a lawn care business in  competition            with the Orkin  branch office which he managed.   There is no            need  to  restate  the   factual  findings  leading  to  this            conclusion.  They are set forth clearly and explicitly in the            district court opinion and we adopt them.                      The district court further found that Orkin had not            proven that defendant's conduct, reprehensible as it may have            been, caused any damage to Orkin.  It held that Orkin did not            prove a causal connection between defendant's conduct and its            claim  that  the  branch  office   defendant  managed  became            worthless.  We  have reviewed the trial  record carefully and            can find no basis for setting the conclusion aside as clearly            erroneous.                                         -4-                                          4                      Plaintiff's expert testified that the branch office            was worth  a minimum of $106,000  in 1990 and in  1993 had no            value at all.  Two of the factors he considered were material            and equipment that disappeared  from the branch office during            defendant's  tenure  as  manager.   This  was  the  basis  of            plaintiff's  conversion  count.    But  the  jury  found  for            defendant on the  conversion claim and  that verdict has  not            been  appealed.    The  missing   equipment,  materials,  and            supplies,  if  such  there   was,  cannot  be  attributed  to            defendant.   And as the district court pointed out, there was            persuasive  evidence  that during  the  period defendant  was            wearing two hats,  the branch office prospered.   During this            time,  business expanded  and profits  increased.   Defendant            received  two bonuses  during the  implicated period  - April            1992 - April 1993.  None of defendant's  superiors complained            about his work;  in fact, his managerial talents were lauded.            And  it must  be noted  that defendant  resigned voluntarily;            there is no  evidence that  he was pressured  into doing  so.            Defendant may have breached his fiduciary  duty to Orkin, but            there  is evidence in plentitude from which it could be found            that such breach caused no harm to Orkin.                      We next address  the district court's finding  that            Orkin  could  not  recover  the  compensation paid  defendant            during the period he  breached his fiduciary duty -  April 1,            1992 to April 9, 1993.  There is no dispute  about the period                                         -5-                                          5            of time during which the breach of fiduciary duty took place.            The  court found:  "[T]he value of his [defendant's] work was            equivalent to  his salary  notwithstanding what he  was doing            for  his  wife's  small  business.    Therefore,  Mr.  Rathje            satisfied his burden of showing that the value of the work he            performed  for Orkin  equalled the  compensation he  received            during the period he breached his duty of loyalty."                      We turn  to the  applicable Massachusetts law.   In            Chelsea Indus.,  Inc. v. Gaffney, the court held that "unless            ________________________________            defendants proved the value  of their services, the plaintiff            was  entitled to  recover  their entire  compensation."   289            Mass. at 14.   The court then went on  to note that, although            given the  opportunity to  do  so, defendants  had failed  to            present evidence as to the fair value of their services.  Id.                                                                      ___            at 15.   In  Meehan  v. Shaughnessy,  the court  held that  a                         ______________________            fiduciary may be required  to repay only that portion  of his            compensation that exceeded the worth  of his services to  his            employer.   404 Mass. at  441.  Clearly,  under Massachusetts            law the employee  must prove  the value  of his/her  services            during the breach period.                      We hesitate to set aside the factual finding of the            district  court  that  defendant  "satisfied  his  burden  of            showing that the  value of  the work he  performed for  Orkin            equalled the  compensation he  received during the  period he            breached his duty of loyalty."  But we are persuaded that the                                         -6-                                          6            finding is clearly erroneous for two related reasons.  First,            there  was no  explicit  evidence as  to  the fair  value  of            defendant's services during the period of breached loyalty as            would seem  to be  required  under Massachusetts  law.   This            standing alone, however, would not render the finding clearly            erroneous.   There was evidence which,  in the ordinary case,            would suffice to sustain the district court's finding despite            the  lack of explicit  evidence by defendant  that the salary            paid to him during the period equalled the  fair value of the            services performed.                      This, however,  is not the ordinary  case.  Because            of  the   court's  finding  that  defendant's  energies  were            diverted away  from his responsibilities to  Orkin, and given            the burden  on him to  prove the  value of his  services, the            court's  finding that he was worth  everything Orkin paid him            is very hard to credit.  It could be argued that Orkin set up            fairly precise standards for measuring the job performance of            an  employee  in  defendant's  position  and  that  defendant            satisfied  them.   There  may be  certain  jobs where  it  is            possible to  measure an employee's performance  so accurately            that  evidence of  the employer's  positive evaluation  would            sustain  a finding  that the amount  paid the  employee would            equal the fair value of his services.  But this is not such a            case.                                         -7-                                          7                      In this case, such  a measurement was not possible.            As  a branch office manager, defendant not only operated with            relatively little direct monitoring, but also contributed  to            the  criteria used  to  judge his  performance.   In  a  "1st            quarter review letter" authored by defendant, dated March 27,            1993,  which  was  within  the  breached-loyalty  period,  he            stated,  in effect,  that he  was ahead  of Orkin's  goal for            customer  confirmations  and  its  profit/loss target.    The            evidence establishes that defendant helped formulate  his own            branch office goals.                        We think  it was  error for the  district court  to            place  the emphasis it did  on the bonuses  paid defendant by            Orkin and  the positive  evaluation he received  because they            were  based on  Orkin's  mistaken belief  that defendant  was            putting  his  undiluted  efforts  into  its  business.    Had            defendant not  deceived his  employer, it  is clear that  its            perception  of  his  value  to the  company  would  have been            altered.  We therefore hold that it was clearly erroneous for            the district court to find that the fair value of defendant's            services to Orkin was  unimpaired.  The court failed  to give            proper weight  to its own  finding, solidly supported  in the            record, that defendant diverted  an appreciable amount of his            time and energy from Orkin's business to a competing business            owned and  operated by  him  and his  wife.   And  the  court            apparently failed to factor into its finding the heavy burden                                         -8-                                          8            on defendant to prove that his work was worth the full amount            paid him by Orkin.                      We  recognize that  the  evidence credited  by  the            district court indicates that defendant's services were worth            something to Orkin.   But under our reading of the record and            our  understanding of  Massachusetts law,  this must  be less            than  the  full   amount  paid.    A  remand  is,  therefore,            necessary.  Although the court's calculation will necessarily            be imprecise, it is  well within the capability of  the trial            judge  to  make.    We  will,  of  course,  give  substantial            deference to a reasonable finding by the court.                      The district  court also  committed clear error  in            another respect.   It found  in footnote six  of its  opinion            that "Orkin submitted no evidence reflecting the compensation            paid Mr.  Rathje during the  relevant period."   The relevant            period was from  April 1, 1992  to April 9,  1993.  In  fact,            Exhibit T  shows that  defendant was paid  $45,000, including            bonuses,  from January  1,  1992 to  December  31, 1992,  and            $13,905.29 for the period  January 1, 1993 to April  9, 1993.            Although this  does not cover the  relevant period precisely,            it   is  sufficiently   complete  so   that  the   amount  of            compensation paid during the  relevant period can be prorated            and accurately determined.                                      The 93A Claim                                    The 93A Claim                                    _____________                                         -9-                                          9                      Chapter  93A    11  of Mass.  Gen. Laws  Ann. (West            1984) provides:                      Any person who engages in the conduct  of                      any trade or commerce and who suffers any                      loss   of  money  or  property,  real  or                      personal,  as  a  result  of the  use  or                      employment  or  by  another   person  who                      engages  in any trade  or commerce  of an                      unfair method of competition or an unfair                      or  deceptive  act  or practice  declared                      unlawful by section two ... may ... bring                      an action in  the superior court  ... for                      damages and equitable relief...                      The  district court held  that because Orkin failed            to prove a causal  connection between defendant's conduct and            harm,  if any,  to Orkin,  there was  no 93A  violation.   We            agree.  As already pointed out, there was evidence from which            it could reasonably be found that the Orkin branch,  operated            by defendant during the time he aided and abetted his wife in            competition  with Orkin, prospered.  See supra.  It is beyond                                                 ___ _____            peradventure that "there must  be a causal connection between            seller's  deception and the  buyer's loss."   Kohl  v. Silver                                                          _______________            Lake Motors,  Inc., 369  Mass. 795, 800-01  (1976); Shepard's            __________________                                  _________            Pharmacy  v. Stop & Shop  Companies, Inc., 37  Mass. App. Ct.            _________________________________________            516, 522 (1994); PDM  Mechanical Contractors, Inc. v. Suffolk                             ____________________________________________            Constr. Co., Inc., 35 Mass. App. Ct. 228, 237 (1993).             _________________                      Affirmed in part.   Remanded for the district court                      Affirmed in part.   Remanded for the district court                      ___________________________________________________            to determine an appropriate  amount of defendant's salary for            to determine an appropriate  amount of defendant's salary for            _____________________________________________________________            reimbursement to Orkin.            reimbursement to Orkin.            _______________________                      No costs to either party.                      No costs to either party.                      _________________________                                         -10-                                          10
