Bukuras v. Mueller Group, LLC, (1st Cir. 2010)
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United States Court of Appeals
For the First Circuit
Nos. 08-2160
08-2161
GEORGE P. BUKURAS,
Plaintiff-Appellant, Cross-Appellee,
v.
MUELLER GROUP, LLC,
Defendant-Appellee, Cross-Appellant.
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Douglas P. Woodlock, U.S. District Judge]
Before
Lynch, Chief Judge,
Torruella and Ripple,
[1]
Circuit Judges.
Jeremiah P. Sullivan, Jr., with whom Sullivan and McDermott,
was on brief for appellant.
Christopher Cole, with whom Karyl R. Martin and Sheehan
Phinney Bass + Green, P.A., were on brief for appellee.
January 20, 2010
TORRUELLA, Circuit Judge. This is a contract dispute
between the Mueller Group, LLC ("Mueller" or the "Company") and its
former general counsel, George P. Bukuras, over the interpretation
of the severance and general release provisions of Bukuras's
employment agreement. The district court granted summary judgment
against Bukuras on his claim that the Company breached the terms of
his employment when it failed to include in the calculation of his
severance compensation a $1 million transaction bonus he received
in connection with a sale of the Company, which the district found
unsupported by the plain terms of the agreement. See Bukuras v.
Mueller Group, LLC, No. 06-11790, 2008 U.S. Dist. LEXIS 64517, at
*17 (D. Mass. Aug. 14, 2008). The district court also granted
summary judgment against Mueller on its counterclaim alleging that
Bukuras's suit violated a general release of claims executed by
Bukuras at the time of his termination, finding that Bukuras's
claim was outside the scope of the release and that, in any event,
the release did not support an independent claim for breach which
would entitle Mueller to recover its litigation expenses incurred
in defending against Bukuras's claims. Id. at *23-25. On appeal,
both parties challenge these determinations. We affirm in all
respects.
I. Background
A. Facts
In August 2000, Mueller chief executive officer Dale
Smith offered Bukuras a position as the Company's general counsel.
Smith's offer letter provided for a base salary of $180,000, an
annual bonus equal to four percent of the Company's shared bonus
pool, and other benefits, including severance benefits as outlined
in Mueller's draft executive severance pay policy. A copy of that
policy was attached to the offer letter. Bukuras accepted, and
began work as Mueller's general counsel in October 2000.
Two years later, in the fall of 2002, Mueller's owners,
DLJ Merchant Banking Partners ("DLJ"), contemplated selling the
Company through a private auction. In connection with this effort,
Bukuras informed Smith in January 2003 that, in his opinion, the
Company was legally obligated to pay him upon termination the
benefits described in the severance policy attached to Smith's
August 2000 offer of employment, and that those payments were among
the obligations that needed to be disclosed to prospective bidders.
Smith, who had never submitted the draft policy to Mueller's board
of directors for approval, disagreed with Bukuras and the conflict
became heated. Smith invited Bukuras to resign.
Looking to resolve the matter, Bukuras sent a memorandum
to Mueller's board of directors in which he summarized his version
of the disagreement with Smith and informed the board of his
preference to remain with the Company through the proposed sale,
provided he could execute a new employment agreement so that
everyone would be on the same page regarding his severance
benefits. The board agreed and, after negotiations in which both
Bukuras and the Company were represented by counsel, the parties
executed a new employment agreement, which became effective in
early February 2003.
Under the terms of the 2003 employment agreement (the
"Agreement"), Mueller undertook, among other things, to pay Bukuras
an increased annual salary of at least $200,000 and, under the
heading "Bonus," "an annual bonus, payable at the conclusion of
each fiscal year, equivalent to not less than 5% of the bonus pool
applicable to compensate executive management of the company."
Agreement, § 4 [hereinafter, the "Bonus Provision"]. In addition,
the Agreement provided that if the Company terminated Bukuras for
any reason other than cause:
[T]he employee shall be entitled to severance
compensation in an amount equal to the sum of
(A) eighteen (18) months Salary (at the rate
then in effect), plus (B) one hundred fifty
(150%) percent of the bonus paid or payable to
the Employee for the fiscal year immediately
preceding the fiscal year in which termination
occurs.
Id. § 4(d) (emphasis added)[hereinafter, the "Severance
Provision"]. Receipt of this severance payment was expressly
conditioned on Bukuras's execution of a general release of claims
against the Company, and a model release was appended to the
Agreement. Further, in exchange for the severance benefits
described in the Agreement, Bukuras agreed to forgo certain
"Transaction Benefits" that the board was then considering awarding
to certain employees "in connection with a change of control
transaction expected to be consummated during [fiscal year ("FY")
2003]." Id. § 4(c).
[2]
At the time he entered into the Agreement, Bukuras had
received annual bonuses for each of his two years at Mueller. In
both years, the bonuses were conditioned on the Company meeting
certain financial targets, measured in terms of earnings before
interest, taxes, depreciation, and amortization (or, "EBITA").
Based on those targets, the Company allocated a pool of money for
division among eligible senior executives according to the terms of
their employment. For example, for FY 2001 the Company set an
earnings target of $180 million EBITA and a bonus pool of
$4,797,000. When the Company hit its mark, Bukuras received a
$192,000 bonus, which was equal to four percent of the pool, per
the terms outlined in Smith's initial offer letter. For FY 2002,
Bukuras received a bonus of $240,000, calculated according to the
same methodology. Following the execution of the revised
Agreement, under which Bukuras was entitled to a larger (five
percent) share of the annual bonus pool, he received a $245,000
bonus for FY 2003 and a $210,000 bonus for FY 2004, with both
bonuses calculated according to the same EBITA-based formula used
in previous years. In every year of his employment, Bukuras
received his annual bonus following the conclusion of the fiscal
year, a delay which was necessary to allow the Company's auditors
to review its earnings.
The auction process contemplated by DLJ was unsuccessful
and did not result in the sale of the Company in 2003. As a
result, Smith and Bukuras's strained relationship continued.
However, in late 2004, DLJ began the process for another private
auction in a second attempt to sell the Company. In April 2005,
anticipating the sale, Mueller's board passed several resolutions
relating to the compensation of key executives, including a
resolution setting the EBITA target and bonus pool for FY 2005
according to the same methodology used in previous years.
Walter Industries ("Walter") emerged as the successful
bidder at auction and, on June 17, 2005, Mueller and Walter signed
a definitive merger agreement, which was conditioned on, among
other things, Hart-Scott-Rodino antitrust review by the Federal
Trade Commission ("FTC"), see 15 U.S.C. § 18a, a process expected
to take several months. Closing was set to occur within two days
of the satisfaction of all conditions set forth in the merger
agreement. However, the merger agreement provided that if the
conditions were not satisfied within six months of the June
signing, the agreement would terminate and Walter's obligation to
purchase the Company would expire.
Also on June 17, 2005, the board passed a resolution
setting aside a pool of up to $10 million for the payment of a
one-time "transaction bonus." At closing, this pool would be
allocated to 17 employees -- including Bukuras, certain members of
the management team, and legal personnel involved in bringing the
transaction to a close.
[3]
The transaction bonus was intended to
provide an incentive to the employees, some of whom understood they
would likely be terminated following the sale, to remain with the
Company until the merger was complete. The transaction bonus was
also meant to reward those employees for their efforts in bringing
the transaction to a successful close. Bukuras expected to receive
a $1 million transaction bonus, equal to ten percent of the pool,
if and when the deal went through.
Following the execution of the merger agreement, on
advice of outside counsel, Bukuras and other employees agreed to
submit certain anticipated change of control payments, including
the transaction bonus and any severance compensation, for
shareholder approval in order to avoid a tax penalty. As general
counsel (and also, since June 2004, chief compliance officer),
Bukuras was responsible for overseeing the preparation of
shareholder solicitation and disclosure documents related to these
payments. In July 2005, Bukuras's legal department prepared
spreadsheets which identified the anticipated severance
compensation and "Transaction Payment[s]" for certain employees.
The final spreadsheets, dated July 18, 2005, calculated Bukuras's
anticipated severance payment as $1,027,500, using only his salary
and, explicitly, his estimated FY 2005 "annual bonus." The
spreadsheets did not include the transaction bonus in the severance
calculation; instead, it was identified in a separate column in the
spreadsheet. The figures in the spreadsheet were based on the
assumption that the merger would close in FY 2006 and that the
employees would be terminated in that year.
Charts based on these spreadsheets, and containing the
same or materially similar disclosures, were reviewed and approved
by Mueller's board and, on August 17, 2005, submitted to the
Company's shareholders for approval. The shareholder disclosures
indicated that the estimated severance payments were "calculated by
reference to an estimated annual bonus payable for the 2005 fiscal
year" (emphasis added). The shareholders approved the payments as
outlined in the disclosures.
In early September 2005, the FTC notified Mueller of
early termination of its approval process, which Mueller's outside
counsel had previously opined would likely not occur until mid- to
late November 2005 (i.e., FY 2006). The FTC approved the merger.
On September 26, 2005, Smith sent a letter to Bukuras stating, in
relevant part:
[W]e are anticipating that the sale of Mueller
Water Products to Walter Industries will occur
on Monday, October 3. . . . I've been
allowed the privilege of rewarding certain of
our employees that have been involved in the
sale process and whom have expended
significant extra time and energy in bringing
this transaction to a successful close.
Therefore, upon the completion of the
transaction on Monday, October 3, you will be
receiving $1,000,000 as a one-time special
bonus for your contribution to this
transaction.
[hereinafter, the "September 2005 Letter"]. The merger closed as
expected on October 3, 2005 -- the first business day of FY 2006 --
and Bukuras was wired the $1 million transaction bonus.
In early November 2005, Bukuras was terminated without
cause. In connection with his termination, and as an express
condition for receiving his severance payment, Bukuras signed a
broad, general release of all claims against the Company, including
claims arising from his severance of employment.
In December 2005, Bukuras received his annual,
EBITA-based bonus for FY 2005 in the amount of $468,600. However,
Bukuras had agreed, for tax purposes, to defer receipt of his
severance compensation until six months after his termination.
Thus, it was not until May 2006 that Bukuras received his severance
payment of $1,040,700, which was based on 1.5 times his annual
salary and 1.5 times his FY 2005 annual bonus. The $1 million
transaction bonus he had received on October 3, 2005 was not
factored into the calculation of his severance payment.
On May 18, 2006, Bukuras sent a letter to Smith calling
attention to the Company's failure to include the termination bonus
in the calculation of his severance payment and requesting a
response, which he never received.
B. Procedural History
Bukuras filed a lawsuit in Massachusetts state court on
September 20, 2006, which Mueller removed to federal court. In his
first amended federal complaint, filed in February 2007, Bukuras
asserted several causes of action, including breach of contract,
fraud, unjust enrichment, deceit, and negligent misrepresentation.
Six of the claims were based, at least in part, on the Company's
alleged failure to provide Bukuras with stock options commensurate
with those awarded to other senior executives. Another claim, for
breach of the Agreement, was based on Mueller's failure to include
the transaction bonus in the calculation of his severance payment.
Mueller responded by filing a counterclaim alleging that Bukuras
had breached the general release when he filed suit, and moved to
dismiss Bukuras's complaint in its entirety. The district court
granted the motion to dismiss all of Bukuras's claims but the claim
for breach of contract based on Mueller's calculation of his
severance compensation.
The parties subsequently filed cross-motions for summary
judgment on both the claim and counterclaim, and on August 14, 2008
the district court issued its decision. See generally Bukuras,
2008 U.S. Dist. LEXIS 64517. First, the court granted Mueller's
motion, and denied Bukuras's motion, on Bukuras's contract claim,
concluding that the contract was unambiguous and that "the bonus"
described in the Agreement's Severance Provision referred
exclusively to the Company's annual, EBITA-based bonus and did not
include the transaction bonus. Second, the court granted Bukuras's
motion, and denied the Company's motion, on Mueller's counterclaim,
holding that the release did not include within its scope Bukuras's
cause of action based on improper calculation of the severance
payment, which was unliquidated at the time he signed the release.
In addition, it held that the release was an affirmative defense to
Bukuras's claims, but did not give rise to an agreement not to sue
capable of supporting Mueller's claim for damages. Both parties
now appeal.
II. Legal Framework
A. Standard of Review
We review a district court's grant of summary judgment de
novo, Insituform Techs., Inc. v. Am. Home Assurance Co., 566 F.3d
274, 276 (1st Cir. 2009), and "the presence of cross-motions for
summary judgment does not alter or dilute this standard." Kunelius
v. Town of Stow, 588 F.3d 1, 8 (1st Cir. 2009). "We will affirm
entry of summary judgment if the record -- viewed in the light most
favorable to the nonmoving party, including all reasonable
inferences drawn in favor of the nonmoving party -- discloses no
genuine issue of material fact, and the moving party is entitled to
judgment as a matter of law." Id. at 8-9. "We may affirm summary
judgment on any ground manifest in the record." Emhart Indus. Inc.
v. Century Indem. Co., 559 F.3d 57, 65 (1st Cir. 2009).
B. Contract Interpretation
Under the terms of the Agreement, we look to
Massachusetts contract law. The interpretation of an unambiguous
contract is a question of law for the court, as is the initial
determination of whether an ambiguity exists. Basis Tech. Corp. v.
Amazon.com, Inc., 878 N.E.2d 952, 958-59 (Mass. App. Ct. 2008).
"Provisions are not ambiguous simply because the parties have
developed different interpretations of them. Genuine ambiguity
requires language susceptible of more than one meaning so that
reasonably intelligent persons would differ as to which meaning is
the proper one." Id. at 959 (quotation marks and alterations
omitted); see Teragram Corp. v. Marketwatch.com, Inc., 444 F.3d 1,
9 (1st Cir. 2006) (applying Massachusetts law, and explaining that
"[e]ven if a contract might arguably appear ambiguous from its
words alone, the decision remains with the judge if the alternative
reading is inherently unreasonable when placed in context").
"[A]n agreement is to be 'construed so as to give it
effect as a rational business instrument and in a manner which will
effectuate the intent of the parties[;]' the parties' intent 'must
be gathered from a fair construction of the contract as a whole and
not by special emphasis upon any one part.'" Kingstown Corp. v.
Black Cat Cranberry Corp., 839 N.E.2d 333, 336 (Mass. App. Ct.
2005) (internal citations omitted). "[W]ords that are plain and
free from ambiguity must be construed in their usual and ordinary
sense," and the agreement should be read "in a reasonable and
practical way, consistent with its language, background, and
purpose." Cady v. Marcella, 729 N.E.2d 1125, 1129-30 (Mass. App.
Ct. 2000) (internal quotation marks omitted).
"Common sense is as much a part of contract
interpretation as is the dictionary or the arsenal of cannons."
Fishman v. LaSalle Nat'l Bank, 247 F.3d 300, 302 (1st Cir. 2001).
"In short, words matter; but the words are to be read as elements
in a practical working document and not as a crossword puzzle."
Fleet Nat'l Bank v. H&D Entm't, 96 F.3d 532, 538 (1st Cir.
1996)(applying Massachusetts law).
III. Discussion
A. Alleged Breach of the Severance Provision
The Agreement's Severance Provision obligated Mueller to
pay Bukuras upon termination "one hundred fifty (150%) percent of
the bonus paid or payable to the Employee for the fiscal year
immediately preceding the fiscal year in which termination occurs."
This dispute centers on the meaning of "the bonus" as used in this
provision.
Bukuras contends that "the bonus" captures both his FY
2005 annual bonus and the transaction bonus he received in
connection with the successful merger with Walter in FY 2006. He
takes two steps to reach this conclusion. First, he contends that
the transaction bonus was "paid or payable" for FY 2005 because,
according to Smith's September 2005 Letter, the transaction bonus
was paid "for his contribution" to the successful merger with
Walter, and all his work towards that end occurred in FY 2005.
Second, Bukuras argues that, in contrast to the "annual bonus"
described in the Bonus Provision, the parties left the term "bonus"
in the Severance Provision undefined and therefore to its plain and
ordinary meaning, which he asserts comprehends both his FY 2005
annual bonus and any additional funds over and above his salary
which were "paid or payable" to him for that year. Therefore, he
insists, Mueller breached its obligations under the Severance
Provision when it failed to include 150% of the transaction bonus
in his severance payment.
Mueller counters, and the district court found, that the
transaction bonus was properly excluded from the calculation of
Bukuras's severance payment because (1) the transaction bonus was
not "paid or payable" for FY 2005 due to the undisputed fact that
payment of the bonus was contingent on the closing of the merger,
which did not occur until FY 2006; and, in any event, (2) the
Agreement, read as a whole, makes clear that the drafters intended
"the bonus" referenced in the Severance Provision to refer,
exclusively, to the "annual bonus" described in the Bonus
Provision.
We agree with the district court that Mueller was not
required under the terms of the Agreement to include Bukuras's $1
million transaction bonus in the calculation of his severance
payment. As Bukuras has acknowledged, the transaction bonus was
paid, and became payable, in FY 2006 when the merger occurred.
Nonetheless, Bukuras contends that when the bonus was paid or
became payable is immaterial for purposes of determining what the
bonus was paid "for." Rather, he asserts that the plain language
of the Severance Provision requires us to ask what the transaction
bonus was "in consideration or payment of." See Random House
Dictionary of the English Language (2d. ed. 1987) (defining
"for")(quoted in Appellant's Br. 17 n.12).
[4]
Relying on Smith's
September 2005 Letter, he maintains that the transaction bonus was
for "his significant extra time and energy in bringing [the]
transaction to a successful close" and for "his contribution" to
the merger. There is no dispute that his efforts with respect to
the merger wrapped up in the final hours of the last business day
of FY 2005.
Nonetheless, we reject the contention that the
transaction bonus can reasonably be understood as "for" anything
but the closing of the merger transaction in FY 2006. Indeed, the
September 2005 Letter on which Bukuras relies specifically
describes the transaction bonus as a "one-time special bonus" which
would be paid, and would become payable, "[u]pon completion of the
transaction" in FY 2006. Had the deal collapsed prior to closing,
regardless of Bukuras's FY 2005 efforts or contribution, the bonus
would never have been "paid" or become "payable." We thus conclude
that because the closing occurred in the same year in which Bukuras
was terminated, the transaction bonus was not "paid or payable
. . . for the fiscal year immediately preceding" his termination
and was, therefore, outside the scope of the Severance Provision.
In any event, we also agree with the district court that
a comprehensive reading of the Agreement confirms that the parties
intended "the bonus" in the Severance Provision to mean Bukuras's
"annual bonus." In plain English, Bukuras's bonus "for" the fiscal
year immediately preceding his termination is most comfortably
understood as his FY 2005 "annual bonus." Mueller persuasively
explains that the phrase "the bonus paid or payable . . . for . . .
the fiscal year" was included to reflect the reality that annual
bonuses were paid following the conclusion of the fiscal year in
order to allow its auditors time to crunch the Company's annual
earnings figures.
This understanding of the term "bonus" as "annual bonus"
is confirmed by the context in which the word was used; namely, an
employment agreement containing an express Bonus Provision
obligating the Company to pay an "annual bonus, payable at the
conclusion of each fiscal year." It also lines up with common
sense. Mueller's historical practice of paying Bukuras an "annual
bonus" based on annual earnings reinforces the conclusion that,
when the parties referenced "the bonus" for "the fiscal year," they
had in mind the only bonus which Bukuras had received, and under
the terms of his employment had an expectation to receive, at the
time the Agreement was drafted.
[5]
As the district court noted, the
Severance Provision references "the bonus" in the singular, and the
reasonable inference is that by doing so the parties intended to
refer back to, and incorporate, the only other bonus -- Bukuras's
"annual bonus" -- described within the four corners of the
Agreement. Against this backdrop, Bukuras's contention that "the
bonus" is a collective noun capable of comprehending the payment of
multiple bonuses is a stretch too far.
Finally, as Section 4(c) of the Agreement makes clear,
when the agreement was signed Bukuras had expressly agreed to waive
any right to "Transaction Benefits" associated with the then-contemplated sale of the Company in exchange for the severance
benefits described in Section 4(d). This provision demonstrates
that, at the time of drafting, the parties did not understand the
term "bonus" to include "Transaction Benefits." Even if the
specific transaction referenced in Section 4(c) never materialized,
Bukuras fails to explain why the parties would have understood
special compensation associated with the FY 2006 transaction any
differently.
[6]
Bukuras disputes this construction, emphasizing that
unlike the term "Salary," which is defined in Section 4(a) and
expressly incorporated in the Severance Provision, the Agreement
does not create "bonus" as a defined term. He thus asserts that
the term "bonus" as used in the Severance Provision was
intentionally left to its plain, ordinary, and expansive meaning of
"something given or paid over and above what is due." Random House
Dictionary of the English Language (2d ed. 1987) (quoted in
Appellant's Br. 14), and not the more limited description of
"Bonus" as "annual bonus" set forth in the Bonus Provision.
However, "the scope of a party's obligations cannot 'be delineated
by isolating words and interpreting them as though they stood
alone.'" Starr v. Fordham, 648 N.E.2d 1261, 1269 (Mass. 1995)
(quoting Comm'r of Corp. & Taxation v. Chilton Club, 61 N.E.2d 335
(Mass. 1945)). As discussed, Bukuras's proposed construction
strains the language of the contract, fails to account for the
circumstances in which the Agreement was drafted, and is belied by
a common sense reading of the document as a whole. The Agreement's
failure to explicitly define "bonus" to the same extent as "Salary"
fails to override these considerations. Cf. Wyner v. North Am.
Specialty Ins. Co., 78 F.3d 752, 756-57 (1st Cir. 1996) (applying
Massachusetts contract law, and concluding that the inconsistent
capitalization and usage of terms in an insurance contract failed
to create an ambiguity where the contract's meaning could be
reasonably discerned from other provisions).
Finally, Bukuras makes much of the fact that the Bonus
Provision only required payment of an annual bonus "equivalent to
not less" than the specified share of the annual bonus pool, and
did not tie the Company to any particular method for determining
bonus levels. He argues, among other things, that because payment
of the $1 million transaction bonus alone would have satisfied the
Company's obligations pursuant to the Bonus Provision, the
transaction bonus must fall within the ambit of "bonus" for
purposes of the Severance Provision; otherwise, he maintains, the
Company could satisfy its annual bonus obligations while leaving
Bukuras with no "bonus" factor for purposes of his severance
payment. Plainly, this is a false syllogism. While, in Bukuras's
hypothetical, payment of the $1 million he received as the
transaction bonus would have been "at least equivalent to" his
annual bonus share and therefore satisfied Mueller's obligations
under the Bonus Provision, it does not follow that the transaction
payment should therefore be understood as his "annual bonus."
There is no dispute that Mueller paid Bukuras a substantial "annual
bonus" for FY 2005 and included that annual bonus in the
calculation of his severance payment.
Accordingly, we agree with the district court, for
essentially the same reasons, that the Company did not breach the
terms of the Agreement when it failed to include Bukuras's
transaction bonus in the calculation of his severance payment. We
thus affirm the grant of summary judgment in favor of Mueller, and
against Bukuras, on his claim for breach of the Agreement.
[7]
B. Alleged Breach of the General Release
On cross-appeal, Mueller contends that the district court
erred when it held that the Company could not recover its fees and
costs associated with defending against Bukuras's claims as damages
for Bukuras's alleged violation of the release he signed. Bukuras
answers that his claim for breach of the Agreement was outside the
scope of the release and that, in any event, under the so-called
American Rule, Mueller is not entitled to recoup its litigation
expenses as damages for breach. Bukuras also maintains that all of
his claims were permitted under a carve-out provision in the
release, which states that "nothing herein is intended or shall be
construed or understood to diminish or limit in any way any of the
protections and/or benefits to which I may be entitled." The
district court's determination that the release is enforceable as
a knowing and voluntary waiver of rights is not at issue in this
appeal.
The release executed by Bukuras was a broad one. In it,
Bukuras "voluntarily, irrevocably, and unconditionally release[d]
and forever discharge[d]" the Company "from any and all complaints,
claims, demands, or liabilities, or rights, whether known or
unknown and whether in law or equity" which have or may "arise in
whole or in part from [his] employment and/or termination from the
Company." The release goes on to "specifically include[]" a number
of contract claims relating to his "employment or severance of
employment." The release provided Bukuras with a right to seek
clarification of its terms, and stated that upon execution the
Company would "assume, and ask any court or trier of fact to
assume, that you have understood everything on which clarification
has not been sought." Bukuras sought no clarification regarding
the amount of his severance prior to his execution of the release
on November 1, 2005.
Nonetheless, the district court held that Bukuras's claim
regarding the calculation of his severance payment was outside the
scope of the release because "the precise amount of the severance
payment had not been liquidated at the time the release was
executed." Under the circumstances, we agree with this conclusion.
Bukuras's claim for breach of the Severance Provision alleged that
the Company failed to pay him the full benefits he was promised in
consideration for signing the release. As the district court
noted, Mueller's proposed interpretation would permit the Company
to violate the terms of his employment contract by paying him less
severance than he was due. An interpretation of the release that
would deprive Bukuras of any recourse in the event of a violation
of an unliquidated obligation on the part of the Company is simply
untenable. We therefore conclude that the release did not prevent
Bukuras from mounting a good faith challenge to the Company's
interpretation of its obligations under the Severance Provision.
We also agree that the Company's attempt to bring an
independent claim for breach of the release in order to recoup the
costs of defending itself in this litigation must fail. A release
is an affirmative defense; it does not supply a defendant with an
independent claim for breach of contract. See Melanson v.
Browning-Ferris Indus., 281 F.3d 272, 276 (1st Cir. 2002) ("Waiver
and releases are affirmative defenses on which the employer bears
the burden.") (applying Massachusetts law); cf. Isbell v. Allstate
Ins. Co., 418 F.3d 788, 797 (7th Cir. 2005) (explaining that a
release "does not result in breach upon the filing of a suit.
Instead, it provides [a defendant] with an effective affirmative
defense should a claim be raised").
Moreover, under the American Rule, which is followed in
Massachusetts, attorneys fees and costs are generally not
recoverable by a prevailing litigant in the absence of an explicit
contractual provision or other applicable rule or statute. See
generally Police Comm'r of Boston v. Gows, 705 N.E.2d 1126, 1128
(Mass. 1999); Waldman v. American Honda Motor Co., 597 N.E.2d 404,
406 (Mass. 1992). Though there is no Massachusetts case squarely
on point, the vast majority of jurisdictions adhering to this Rule
do not permit a litigant pursuing claims for breach of a release to
recover attorneys' fees and costs as damages in the absence of a
contractual clause, rule or statute specifically providing for that
remedy. See, e.g., Allison v. Bank One - Denver, 289 F.3d 1223,
1244-45 (10th Cir. 2002) (applying Colorado law to conclude that
"attorney fees and costs should not be awarded for breach of a
release unless the agreement expressly provides that remedy")
(internal quotation marks and alterations omitted); Gruver v. Midas
Int'l Corp., 925 F.2d 280, 284 (9th Cir. 1991) (explaining "the
majority view that under the American rule, attorney's fees are not
awardable where there has been a breach of a release and covenant
not to sue unless attorney's fees were provided for in that
release"); see also W.R. Grace & Co. - Conn. v. Goodyear Tire &
Rubber Co., No. 1:99-cv-305, 1999 U.S. Dist. LEXIS 22553, at *8-10
(W.D. Mich. Nov. 30, 1999) (noting that "the great majority of
courts that have applied state law in resolving" whether attorneys
fees and costs are recoverable for violation of a release and
covenant not to sue "have held that litigation expenses are not
recoverable," and surveying cases from various jurisdictions). We
conclude that Massachusetts courts would also take this view. Cf.
Gows, 705 N.E.2d at 1129 (stating policy that "[a]n award of
attorney's fees should be reserved for rare and egregious cases").
[8]
In this case, the release Bukuras signed contained no
fee-shifting provision that would have entitled Mueller to recover
its costs or fees in the event of a breach. There is also no claim
that Bukuras brought his lawsuit in bad faith, see Fed. R. Civ. P.
11, or otherwise engaged in litigation conduct which might support
a claim for fees and expenses, see, e.g., Fed. R. Civ. P. 37(c).
Thus, in the absence of an express contractual provision or other
source of authority which would permit the recovery of the relief
Mueller seeks, we conclude that the Company is not entitled to
recover its fees and costs as damages for Bukuras's alleged breach
of the release. Accordingly, we affirm the district court's grant
of summary judgment against Mueller, and in favor of Bukuras, on
its counterclaim.
Affirmed.
Footnotes
[1] 'Of the Seventh Circuit, sitting by designation.
[2] 'At all times relevant to this dispute, Mueller's fiscal year
ended on September 30.
[3] 'Participation in the transaction bonus pool was not coextensive
with participation in "the bonus pool applicable to compensate
executive management of the company" referenced in the Bonus
Provision of Bukuras's Agreement.
[4] 'The Oxford English Dictionary notes, however, that "[o]f time"
is also among the numerous definitions of the preposition "for."
Oxford English Dictionary Online, available at
http://dictionary.oed.com.
[5] 'Though Bukuras asserts that Smith held out the prospect of
additional, discretionary compensation in addition to his annual
bonus, there is no indication in the record that Bukuras received
any other "bonuses" prior to -- or, for that matter, after -- the
Agreement's execution, other than the transaction bonus. The
record does reflect that the Company was not contractually
obligated to pay out one hundred percent of funds available in the
"annual bonus" pool described in the Bonus Provision, and that
Smith had discretion as to how to dispense the remainder, and to
whom. But even if Bukuras could have received an "annual bonus"
greater than the share Mueller was contractually obligated to pay
him, a fact which accounts for the "at least equivalent to"
language used in the Bonus Provision, Bukuras had no reasonable
expectation of receiving this additional, discretionary
compensation at the time he negotiated the Agreement.
[6] 'While Bukuras asserts that his different treatment with respect
to Transaction Benefits supports the notion that he bargained away
those benefits in exchange for an expansive definition of "bonus"
in the Severance Provision, there is no support for this
proposition in the text of the Agreement or elsewhere in the
record. Rather, the explicit language of Section 4(c) and the
circumstances of the parties at the time of drafting indicate that
Bukuras agreed to forgo Transaction Benefits in exchange for
comfort regarding his entitlement to severance benefits in the
event of his possible termination following the contemplated FY
2003 sale. It makes little sense that Bukuras would have bargained
away the Transaction Benefits in exchange for an expansive
definition of bonus capable of comprehending a separate payment
that he had no expectation of receiving.
[7] 'Because we conclude that the Agreement is clear on its face, we
do not consider the August 2005 shareholder disclosures, or
Bukuras's understanding of his severance rights as reflected in
those documents.
[8] 'Mueller contends that we should read the release as a covenant
not to sue, asserting that Massachusetts no longer recognizes any
distinction between the two. The authority Mueller cites for this
proposition, Mass. Gen. Law ch. 231B, § 4(a), is inapposite because
it applies only to contributions among joint tortfeasors. In any
event, we find that this distinction will not help Mueller under
the circumstances because, as the cases cited above demonstrate,
the prevailing view is that, as with a release, attorneys' fees are
not recoverable for breach of a covenant not to sue in the absence
of express contractual language providing otherwise. Accord In re
Weinschneider, 395 F.3d 401, 404 (7th Cir. 2005) (explaining that
under Illinois law, which follows the American Rule, "[a]ttorney
fees and the ordinary expenses and burden of litigation are not
allowable to the successful party" to recover for breach of a
covenant not to sue "in the absence of an agreement or stipulation
specifically authorizing the allowance of attorney fees, or in the
absence of a statute providing for the taxing of attorney fees
against the losing party").
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