Kaechele v . Nova Inform. Sys. CV-00-313-JD 09/24/01
UNITED STATES DISTRICT COURT FOR THE
DISTRICT OF NEW HAMPSHIRE
Cynthia H. Kaechele
and Christopher Kaechele
v. Civil N o . 0
Opinion N o . 2001 DNH 174
Nova Information Systems, Inc.
O R D E R
The plaintiffs, Cynthia and Christopher Kaechele, bring suit
against their former employer, Nova Information Systems, Inc.,
alleging claims of promissory estoppel, breach of the covenant of
good faith and fair dealing, fraud, negligent misrepresentation,
and quantum meruit.1 The plaintiffs also seek a declaratory
judgment, pursuant to 28 U.S.C.A. § 2201, that Nova’s non-compete
agreement is unenforceable. Nova moves for summary judgment on
the plaintiffs’ remaining claims, except the claim for a
declaratory judgment.
Standard of Review
Summary judgment is appropriate when “the pleadings,
depositions, answers to interrogatories, and admissions on file,
1
The Kaecheles’ claim pursuant to New Hampshire Revised
Statutes Annotated chapter 339-E was previously dismissed. The
Kaecheles have now also dismissed their breach of contract and
wage claims.
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). The party seeking summary judgment must first demonstrate
the absence of a genuine issue of material fact in the record.
See Celotex Corp. v . Catrett, 477 U.S. 317, 323 (1986). A
material fact is one that “has the potential to change the
outcome of the suit under the governing law” and a factual
dispute is genuine if “the evidence about the fact is such that a
reasonable jury could resolve the point in favor of the nonmoving
party.” Grant’s Dairy--Me., LLC v . Comm’r of M e . Dep’t of
Agric., Food & Rural Res.,
232 F.3d 8 , 14 (1st Cir. 2000). All
reasonable inferences and all credibility issues are resolved in
favor of the nonmoving party. See Barreto-Rivera v . Medina-
Vargas,
168 F.3d 4 2 , 45 (1st Cir. 1999).
A party opposing a properly supported motion for summary
judgment must present competent evidence of record that shows a
genuine issue for trial. See Anderson v . Liberty Lobby, Inc.,
477 U.S. 2 4 2 , 256 (1986); Torres v . E.I. Dupont De Nemours & Co.,
219 F.3d 1 3 , 18 (1st Cir. 2000). The party with the burden of
proof cannot rely on speculation or conjecture and must present
“more than a mere scintilla of evidence in [his] favor.” Invest
Almaz v . Temple-Inland Forest Prods. Corp.,
243 F.3d 5 7 , 76 (1st
2
Cir. 2001). An absence of evidence on a material issue weighs
against the party who would bear the burden of proof at trial on
that issue. See Perez v . Volvo Car Corp., 247 F.3d 303, 310 (1st
Cir. 2001).
Background
Christopher Kaechele began working for Central Banc Service,
Inc. (“CBS”), a credit card processing company, in 1991. Robert
Murphy was president and majority shareholder of CBS.
Christopher Kaechele’s job with CBS was to recruit new customers
and then to service his customers. CBS employees were not paid a
salary, but instead received commissions based on an agreed
amount paid for each credit card transaction made by his or her
customers. The transactions commissions were called residuals.
Cynthia Kaechele began working for CBS in 1994, and thereafter,
Christopher and Cynthia worked as a team.
In 1998, when Mellon Bank, which processed CBS’s clients’
transactions, notified Murphy that it planned to stop its credit
card business, Murphy began to look for merger possibilities for
CBS. During merger negotiations, Murphy understood that CBS
would remain an autonomous company after the merger.
CBS and Nova entered a merger agreement on November 2 0 ,
1998. CBS continued its operations as usual after the merger
3
agreement was signed. In early 1999, however, Nova began the
process of converting CBS to Nova’s operating system. The
conversion was extremely difficult and stressful for all CBS
employees.
In October of 1999, Nova asked Murphy to have CBS employees
sign Nova employment agreements. The agreement, titled
“Agreement Regarding Employment Matters for Nova Corporation
Sales Force,” included a non-compete clause. The Kaecheles,
along with other CBS employees, were concerned about the non-compete clause. Murphy encouraged them to sign and told them
that he understood, based on his dealings with Nova, that nothing
would change. He characterized signing the agreements as a “no
brainer” and “no big deal.” Christopher’s dep. at 89-90;
Cynthia’s dep. at 110-11, 114-15. Christopher signed the
agreement and then joined Murphy to persuade Cynthia to sign.
Murphy encouraged Cynthia to contact Nova’s attorney about
her concerns. Murphy gave Cynthia the attorney’s name and
telephone number. Cynthia called but never talked with the
attorney. After more persuasion, Cynthia also signed the
agreement.
Murphy returned the signed agreements to Nova in early
November. Later in November, people from Nova called to say that
a representative would be coming to see how CBS closed its books
4
each month. When the Nova representative arrived, he told Murphy
that the accounting function was being moved to Nova headquarters
in Atlanta, Georgia, and would no longer be done by CBS. More
changes occurred during December of 1999 and early 2000.
In February of 2000, Murphy was informed that the
compensation system for former CBS employees would be changed to
the Nova system. The new compensation plan was presented to
Murphy in March of 2000. Murphy thought that the new plan had
unfavorable pricing structures and unreasonable goals for signing
new customers. Murphy was very disappointed and upset. The Nova
employee compensation system paid a “salary” based on
accomplishing set quotas and ended the residuals system that CBS
used for employee compensation. Nova required the former CBS
employees to sign the new compensation plan.
The Kaecheles refused to sign. They were excluded from
meetings and their company pager was terminated. They heard from
a customer that Nova said they had left the company. On May 2 ,
2000, the Kaecheles notified Nova that they were leaving the
company.
Discussion
Nova moves for summary judgment on the Kaecheles’ claims of
promissory estoppel, breach of the duty good faith and fair
5
dealing, quantum meruit, fraud, and negligent misrepresentation.
Nova has not addressed the claim for declaratory judgment. The
Kaecheles object to summary judgment.
The affidavits of Christopher and Cynthia Kaechele, which
merely refer to their counsel’s factual statements in the
memorandum in opposition to summary judgment and are based on
their information and belief, do not satisfy the requirements of
Federal Rule of Civil Procedure 56(e). See Perez, 247 F.3d at
315-16. As such, they are incompetent to oppose summary
judgment. See Rule 56(e). Since Nova has not moved to strike
the affidavits or objected to them in anyway, however, the
affidavits remain as part of the record for summary judgment.
See Perez,
247 F.3d at 314-15. Despite Nova’s failure to object,
the affidavits, which lack affirmative factual statements based
on personal knowledge, have little persuasive value.
A. Promissory Estoppel
The theory of promissory estoppel operates “to impute
contractual stature based upon an underlying promise, and to
provide a remedy to the party who detrimentally relies on the
promise.” Great Lakes Aircraft C o . v . City of Claremont, 135
N.H. 270, 290 ((1992). Under an estoppel theory, “a promise
reasonably understood as intended to induce action is enforceable
6
by one who relies upon it to his detriment or to the benefit of
the promisor.” Panto v . Moore Bus. Forms, Inc., 130 N.H. 730,
738 (1988). To prove such a claim, the plaintiff’s reliance on
the promise must be reasonable. See Marbucco Corp. v . City of
Manchester,
137 N.H. 629, 633 (1993). In addition, the promise
must be sufficiently definite to permit a reasonable
understanding that a commitment has been made. See Michelson v .
Digital Fin. Serv.,
167 F.3d 715, 725 (1st Cir. 1999); Kiely v .
Raytheon Co.,
105 F.3d 734, 736 (1st Cir. 1997).
It is undisputed that representations made by Murphy are
construed as the representations of Nova. Murphy told the
Kaecheles generally that based on his understanding, nothing
would change. See Murphy dep. at 134-36. Murphy told
Christopher that he should sign the non-compete agreement, saying
“‘It’s a no-brainer. Nothin’s gonna happen.’” Christopher’s
dep. at 87 (quoting Murphy). More specifically, with respect to
compensation, he told Cynthia, “nothing was going to change, to
his knowledge.”2 Cynthia’s dep. at 115. He also suggested that
Cynthia contact Nova’s attorney about her concerns.
2
The Kaecheles’ argument, that the deposition statements
limiting Murphy’s representations to his knowledge or his
understanding were taken out of context, is unpersuasive since
the same limitations are used and repeated in both Murphy’s and
Cynthia’s depositions.
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The Kaecheles contend that Murphy’s statements were promises
that Nova would not change the CBS compensation system. Nova
argues that Murphy’s statements were not sufficiently certain to
constitute binding promises about the compensation system.3 Nova
also argues that the Kaecheles’ reliance on such statements as
promises of a particular compensation system was unreasonable.
Under the particular circumstances of this case, Murphy’s
statements were not sufficiently definite to constitute promises
that Nova would not change the compensation system. Murphy’s
general statement that “nothin’s gonna change” does not promise
that Nova would continue the CBS compensation system
indefinitely. Murphy’s more specific statements were
significantly undermined by the limitations based on Murphy’s
knowledge or understanding and Murphy’s suggestion that Cynthia
should contact Nova’s attorney about her concerns. Therefore,
based on the record presented, since the Kaecheles cannot show
that Murphy promised them a particular compensation system, as
they claim, no trialworthy issue remains on their promissory
estoppel claim.
3
Nova’s argument that claims of promissory estoppel by at-will employees, such as the Kaecheles, fail as a matter of law
appears to be contrary to New Hampshire law. See Butler v .
Walker Power, Inc., 137 N.H. 432, 436 (1993) (explaining that the
incidents of employment, such as compensation, may be established
without affecting at-will status).
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B. Good Faith and Fair Dealing
Nova contends that the Kaecheles cannot prove a claim of
breach of the implied duty of good faith and fair dealing. The
Kaecheles’ opposition to summary judgment on this claim is
confusing. In the memorandum supporting their objection, the
Kaecheles argue that they can proceed under three versions of the
good faith and fair dealing duty described in Centronics Corp. v .
Genicom Corp., 132 N.H. 133, 139-44 (1989). Based on their
surreply memorandum, however, the Kaecheles appear to have
limited their claim to good faith and fair dealing in the context
of the termination of their at-will employment.
In order to prove a claim of breach of the implied duty of
good faith and fair dealing in the context of terminating an at-will employee, the plaintiff must show that he or she was
discharged “out of malice or bad faith in retaliation for action
taken or refused by the employee in consonance with public
policy.” See Centronics Corp. v . Genicom Corp., 132 N.H. 133,
140 (1989). The Kaecheles have not presented any evidence of
malice or bad faith or evidence that they were discharged,
constructively or otherwise, in retaliation for their actions or
inactions favored by public policy. Therefore, Nova is entitled
to summary judgment on the claim of breach of the implied duty of
9
good faith and fair dealing based on the termination of their
employment.
To the extent that the Kaecheles also intended to bring
claims under the first and third versions of the implied
obligation, as described in Centronics, they have not shown that
material factual disputes exist as to such claims. The first
type of claim involves good faith in contract formation,
obligating contracting parties “to refrain from misrepresentation
and to correct subsequently discovered error, in so far as any
representation is intended to induce, and is material t o , another
party’s decision to enter into a contract in justifiable reliance
upon it.” Centronics, 132 N.H. at 139. Since the Kaecheles have
not pointed to any evidence that Murphy intentionally
misrepresented that the compensation system would not change or
that he learned of his error and failed to correct it before the
agreements were signed, Nova is entitled to summary judgment on
that claim.
The third version of good faith and fair dealing operates in
circumstances where an agreement appears “to invest one party
with a degree of discretion in performance sufficient to deprive
another party of a substantial proportion of the agreement’s
value.” Id. at 143. In that case, the good faith obligation
requires the party with such discretion “to observe reasonable
10
limits in exercising that discretion, consistent with the
parties’ purpose or purposes in contracting.” Id. The Kaecheles
argue that Nova was obligated to exercise discretion in altering
their compensation system after the non-compete agreement was
signed. Since the non-compete agreement does not include any
provisions applicable to the compensation system, the Kaecheles’
argument is misplaced.
C. The Misrepresentation Claims
The Kaecheles allege claims for fraud and negligent
misrepresentation. “To establish fraud, a plaintiff must prove
that the defendant made a representation with knowledge of its
falsity or with conscious indifference to its truth with the
intention to cause another to rely upon it.” Snierson v .
Scruton, 761 A.2d 1046, 1049 (N.H. 2000). Negligent
misrepresentation involves the unintentional misrepresentation of
material fact by the defendant and justifiable reliance by the
plaintiff. See
id. “‘It is the duty of one who volunteers
information to another not having equal knowledge, with the
intention that he will act upon i t , to exercise reasonable care
to verify the truth of his statements before making them.’”
Patch v . Arsenault,
139 N.H. 313, 319 (1995) (quoting McCarthy v .
Barrows,
118 N.H. 173, 175 (1978)). A victim of misrepresenta-
11
tion may justifiably rely on representations unless contrary
facts are or should be apparent or unless he or she has
discovered something that serves as a warning of deception. See
Field v . Mans, 516 U.S. 5 9 , 71 (1995).
There is no evidence in the record that Murphy told the
Kaecheles that nothing would change knowing that to be false or
with conscious indifference to the truth. Instead, the record
evidence overwhelmingly shows that Murphy believed his statements
were true and was shocked and upset when he learned that Nova was
changing the compensation system. Absent evidence that Murphy
knew that his statements were false or was consciously
indifferent to the truth, no trialworthy issues exists as to the
fraud claim.
With respect to negligent misrepresentation, however,
Murphy, as an officer of Nova, at least had access to more
information about Nova’s operations and plans. The record does
not show that Murphy made any effort to verify his statements
that nothing would change, which he volunteered to induce the
Kaecheles to sign the agreements. Nothing in the record shows
that the Kaecheles knew or should have been warned that Murphy’s
representations were false.
Contrary to Murphy’s representations, the record, taken in
the light most favorable to the Kaecheles, suggests that Nova was
12
planning to change to a uniform compensation system and to
discontinue the CBS system. Those plans may have been in
progress in November of 1999 when Murphy told the Kaecheles that
nothing would change. Since a reasonable jury could find, based
on the present record taken in the appropriate light, that Murphy
negligently misrepresented that no change would occur and that
the Kaecheles justifiably relied on his representations, summary
judgment is not appropriate on that claim.4
D. Unjust Enrichment Claim
The doctrine of quantum meruit or unjust enrichment provides
an equitable remedy in the absence of an enforceable contractual
relationship. See Pella Windows & Doors, Inc. v . Faraci, 133
N.H. 585, 586 (1990). When the doctrine applies, “[a] trial
court may require an individual to make restitution for unjust
enrichment if he has received a benefit which would be
unconscionable for him to retain.” Kowalski v . Cedars of
Portsmouth Condominium Ass’n,
769 A.2d 344, 347 (N.H. 2000). “To
4
Nova’s argument that Murphy’s statements were promises, not
factual misrepresentations, is not persuasive. For purposes of
summary judgment on the misrepresentation claim, Nova’s
distinction between Murphy’s representations about the commission
system specifically and more general representations that nothing
would change are not material.
13
entitle one to restitution, it must be shown that there was
unjust enrichment either through wrongful acts or passive
acceptance of a benefit that would be unconscionable to retain.”
Cohen v . Frank Developers, Inc., 118 N.H. 512, 518 (1978)
(quotation omitted).
The Kaecheles allege that they worked for Nova with the
expectation that they would be paid under the CBS compensation
system and that Nova received the benefits of their efforts but
stopped paying them under that system. In their objection to
summary judgment, the Kaecheles appear to change their claim,
arguing that Nova obtained the non-compete agreement under false
pretenses, which conferred substantial benefit to Nova for which
the Kaecheles should be compensated. Nova contends that no
unjust enrichment occurred.
It is unlikely that an unjust enrichment claim arises from a
contractual relationship, as the Kaecheles now claim. See, e.g.,
Pella, 133 N.H. at 586. In addition, the Kaecheles cannot amend
their complaint by arguments made in opposition to summary
judgment. See Bauchman v . West High Sch.,
132 F.3d 542, 550
(10th Cir. 1997). The Kaecheles also do not point to record
evidence to support either unjust enrichment theory.
The non-compete agreement signed in November of 1999 stated
that the Kaecheles’ continued employment at Nova and certain
14
options to purchase stock constituted consideration for that
agreement. There is no evidence that the Kaecheles did not
receive the promised consideration. The Kaecheles continued to
work for Nova, and apparently were paid, until they quit in May
of 2000. They have not shown that the were not compensated for
any benefit that they provided to Nova. Therefore, Nova is
entitled to summary judgment on the unjust enrichment claim.
Conclusion
For the foregoing reasons, the defendant’s motion for
summary judgment (document n o . 18) is granted as to counts I I ,
III, V , and VII. Counts I , IV, and VIII have been dismissed.
The claims remaining in the case are for negligent
misrepresentation, Count V I , and declaratory judgment, Count IX.
Since the issues in the case have now been considerably
narrowed, counsel are expected to use their best efforts to
resolve the remaining issues before trial which is scheduled to
begin on October 1 6 , 2001.
SO ORDERED.
Joseph A . DiClerico, Jr.
District Judge
September 2 4 , 2001
cc: Donald C . Crandlemire, Esquire
Christopher Cole, Esquire
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