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PREMIER TECH. SALES v. DIGITAL EQUIP. CORP.

May 22, 1998

PREMIER TECHNICAL SALES, INC., Plaintiff,
v.
DIGITAL EQUIPMENT CORPORATION, Defendant.



The opinion of the court was delivered by: WILLIAMS

ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

 Plaintiff Premier Technical Sales, Inc. ("Premier") initiated this suit against Defendant Digital Equipment Corporation ("DEC") alleging the following eight causes of action: (1) breach of the covenant of good faith and fair dealing; (2) breach of contract; (3) promissory estoppel; (4) unjust enrichment; (5) fraud; (6) intentional interference with contractual relations; (7) violation of the Massachusetts Consumer Protection Act; and (8) violation of the California Unfair Practices Act.

 DEC now seeks summary judgment or in the alternative partial summary adjudication as to each of these causes of action.

 BACKGROUND

 Premier provides outside sales representation for companies that manufacture semiconductor chips and other electronics products. DEC is a manufacturer of semiconductor chips and other computer products. On March 1, 1994, Premier and DEC entered into a written Manufacturer's Representative Agreement ("the Agreement"), granting Premier exclusive rights to solicit orders for a variety of DEC semiconductor products in Northern California and Nevada. The Agreement was initially for a one year term, but included an automatic renewal clause, providing that the Agreement would automatically renew at the end of each one-year period for an additional year, unless one of the parties gave 60 days prior written notice of its intent not to renew. In addition, either party could terminate the Agreement for convenience at any time by giving the other party 60 days prior written notice, or for cause by giving 30 days written notice. If DEC were to exercise its right to terminate for convenience, it would be obligated to pay Premier commissions for sales invoiced during the six months following the date of the termination.

 Premier worked as DEC's outside sales representative for two years: from March 1, 1994 until February 29, 1996. Under the terms of the Agreement, commissions were Premier's sole source of compensation. Attachment C of the Agreement set out the commission schedule, which provided for a full commission for sales to a customer within Premier's territory and a partial commission for sales in which only a portion of the transactions leading to the sale occurred within Premier's territory.

 Pursuant to the commission schedule, only sales generated commissions. No compensation was forthcoming for any other event, including what is referred to in sales parlance as a "design-win." A design-win (or sometimes "design-in") occurs when a sales representative convinces a customer to incorporate a particular chip into the design of a product. Although convincing a manufacturer to commit to a particular chip may take substantial time and effort on the part of a sales representative, the Agreement only provided for commissions based on actual sales of the chip. Premier sought and obtained a number of design-wins during the course of its representation of DEC.

 On December 26, 1995, DEC's Vice President of World Wide Sales Richard Riker ("Riker") provided Premier President Steve Dowdell ("Dowdell") with 60-day notice of DEC's intent not to renew the Agreement for an additional year. The parties agree that DEC paid all of the full commissions and split commissions it owed to Premier for sales made during the two-year Agreement period. The parties also agree that DEC paid Premier all commissions for sales invoiced during the six months following the date of the termination.

 DEC contracted with I-Squared, Inc. ("I-Squared") to replace Premier as DEC's outside sales representative effective March 1, 1996. As DEC's outside sales representative, I-Squared serviced all customers previously serviced by Premier, including those from whom Premier had secured design-wins. No customer was served by internal DEC salespeople. DEC paid I-Squared commissions on sales that it would have paid to Premier under the Agreement had Premier continued as DEC's representative.

 LEGAL STANDARD

 Federal Rule of Civil Procedure 56(c) provides that a court shall enter summary judgment "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c).

 A party moving for summary judgment bears "the initial responsibility of informing the district court of the basis for its motion" and must demonstrate that no genuine issue of material fact exists for trial. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986). However, the moving party is not required to negate those portions of the nonmoving party's claim on which the nonmoving party bears the burden of proof. Id.

 Once the moving party demonstrates that there is no genuine issue of material fact, the nonmoving party must designate "specific facts showing that there is a genuine issue for trial." Id. at 324. The nonmoving party must "make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Id. at 322.

 The adjudication of a summary judgment motion is not a "trial on affidavits." Anderson v. Liberty Lobby, 477 U.S. 242, 255, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986). Credibility determinations and weighing of the evidence are solely jury functions. Id. at 255. Inferences drawn from underlying facts must be viewed in the light most favorable to the nonmoving party. Matsushita Elec. Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 89 L. Ed. 2d 538, 106 S. Ct. 1348 (1986) (citing United States v. Diebold, Inc., 369 U.S. 654, 655, 8 L. Ed. 2d 176, 82 S. Ct. 993 (1962)).

 However, there may be no genuine issue of material fact if "the evidence is of insufficient caliber or quantity to allow a rational finder of fact" to find for the nonmoving party. Anderson, 477 U.S. at 254. In some circumstances the factual context may render the nonmoving party's claim implausible, and the nonmoving party must come forward with "more persuasive evidence" to support the claim "than would otherwise be necessary." Matsushita, 475 U.S. at 587.

 DISCUSSION

 The Agreement includes a choice of law provision which provides that Massachusetts law shall be used to resolve any disputes under the Agreement. Therefore, Massachusetts law governs the disposition of all Premier's claims except its claim for violation of the California Unfair Practices Act. See Nedlloyd Lines B.V. v. Superior Court of San Mateo County, 3 Cal. 4th 459, 464-65, 834 P.2d 1148 (1992)(holding choice of law provisions enforceable under California law).

 1. Breach of the Covenant of Good Faith and Fair Dealing

 Premier's first cause of action is for breach of the implied covenant of good faith and fair dealing. Premier argues that DEC violated the implied covenant by the manner in which it enforced the termination provision of the Agreement. Premier contends that DEC demanded that Premier make substantial changes to its business, promising a "long-term relationship" in return. The evidence submitted by Premier demonstrates that DEC, unsatisfied with the sales representation provided by Premier, asked Premier to take such actions as increasing the number of sales representatives on its sales force, hiring a dedicated distribution sales representative, opening a sales office in Sacramento, and expanding employment benefits for its sales representatives. Premier claims that when DEC promised it a long-term relationship in return for compliance with these demands and then terminated the Agreement after just two years, DEC's enforcement of the "for convenience" termination provision violated the implied covenant of good faith and fair dealing. Premier reasons that it is therefore entitled to recover commissions on any and all sales, whenever occurring, which resulted from the design-wins it achieved while representing DEC.

 Massachusetts law implies in every contract a covenant of good faith and fair dealing between the parties. Anthony's Pier Four, Inc. v. HBC Associates, 411 Mass. 451, 471-72, 583 N.E.2d 806 (1991). "Neither party shall do anything that will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract." Id. In situations where one party has the right to exercise discretion under the contract, it is bad faith to utilize that discretion to "recapture opportunities foregone on contracting as determined by the other party's reasonable expectations." Piantes v. Pepperidge Farm, Inc., 875 F. Supp. 929, 938 (D. Mass. 1995)(quoting Anthony's, 411 Mass. at 473).

 When the claim of bad faith or unfairness concerns a contract termination, the Court "should look 'at the consequences of the termination' to determine if it resulted in 'a deprivation of earnings, loss of good will, or loss of investment' and if the plaintiff was subject to unfair dealing." Piantes, 875 F. Supp. at 938 (quoting Gram v. Liberty Mutual Insurance Co., 384 Mass. 659, 667, 429 N.E.2d 21 (1981)). A mere finding that there existed no good reason for the termination absent any other indicia of lack of honesty or bad faith is insufficient to support a claim. Id. "The absence of good cause is not the equivalent of absence of good faith." Id.

 Premier's argument that DEC breached the implied covenant of good faith and fair dealing by the manner in which it exercised the termination provision of the Agreement is not persuasive. DEC hired Premier to provide sales representation. It did so because of Premier's experience and expertise as a sales representative in Silicon Valley. The Agreement allowed either party to terminate with 60 days prior written notice to the other party, and provided a commission payment schedule in case of such a termination. The parties recognized the possibility that one of them would be unsatisfied with the contract and explicitly provided a means to facilitate its termination. Employing that means does not constitute bad faith.

 That DEC wanted improved representation and suggested to Premier certain ways in which that could be accomplished before exercising its right to terminate likewise does not evidence bad faith. If anything, that DEC attempted to resolve its concerns with Premier before terminating the Agreement demonstrates its good faith. There is no evidence that DEC did anything that had the effect of destroying or injuring Premier's right to receive the fruits of the Agreement.

 Premier further argues that its "design-wins" assured DEC of a steady flow of future sales and that Premier is entitled to recover future benefits reflective of its past services. In support of its argument, Premier relies on Fortune v. National Cash Register Co., 373 Mass. 96, 364 N.E.2d 1251 (1977), and its progeny. Premier's reliance on Fortune, however, is misplaced. In Fortune, the defendant sought to avoid paying a sales representative a significant portion of a commission by terminating him after an order had been placed but before the sale had been completed. The defendant would have kept that portion of the commission for itself, thus realizing a financial windfall. The court held that the defendant acted in bad faith when it terminated the sales representative in order to deprive him of a commission he had already earned.

 In the present action, Premier acknowledges that it has been paid commissions due on all sales made during the two-year Agreement period, as well as the six months following the termination. There is no dispute regarding compliance with the actual terms of the Agreement. Instead, Premier argues that the work it performed securing "design-wins" for DEC entitles it to commissions on sales likely to be placed following termination of the Agreement. That a sales representative's "efforts may have augmented the prospect for future orders does not bring [an action] within the ambit of [Fortune ]." Gerald Rosen Co., Inc. v. International Telephone & Telegraph Co., 16 Mass. App. Ct. 929, 450 N.E.2d 189, 190 (Mass. App. 1983). "The cases have not extended the concept [of bad faith termination] to cover a generalized expectation of future orders in types, quantities, and sums unknown at the time of termination." Id. The commissions Premier seeks are for orders that were uncertain at the time DEC terminated the Agreement. "A rule ...


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