Sonoran Scanners, Inc. v. Perkinelmer, Inc.

585 F.3d 535

SONORAN SCANNERS, INC.; Joseph P. Donahue, Plaintiffs, Appellants, v. PERKINELMER, INC., Defendant, Appellee.

No. 09-1089.

United States Court of Appeals, First Circuit.

Heard July 30, 2009.

Decided October 29, 2009.

Edward T. Dangel, III, with whom Dangel & Mattchen, LLP, was on the brief, for appellants.

Jonathan Isaac Handler, with whom Jillian B. Hirsch and Day Pitney, LLP, was on the brief, for appellee.

Before TORRUELLA, BOUDIN, and DYK,^* Circuit Judges.

DYK, Circuit Judge.

Plaintiffs Joseph P. Donahue ("Donahue") and Sonoran Scanners, Inc. ("Sonoran") appeal from an order of the United States District Court for the District of Massachusetts granting summary judgment to defendant PerkinElmer, Inc. ("PerkinElmer") on claims for breach of contract and violation of Massachusetts General Laws Chapter 93A, Mass. Gen. Laws ch. 93A § 11. These claims arise from an Asset Purchase Agreement ("Purchase Agreement") in which PerkinElmer acquired Sonoran's computer-to-plate printing technology business ("CTP Business") and an employment agreement ("Employment Agreement") under which Donahue (the founder of Sonoran) agreed to serve as "Site Leader and General Manager" of the CTP Business for PerkinElmer. Sonoran Scanners, Inc. v. PerkinElmer, Inc., 590 F.Supp.2d 196 (D.Mass. 2008).

We agree that the district court correctly granted summary judgment to PerkinElmer with respect to most of the claims. However, we conclude that under Massachusetts law the Purchase Agreement contains an implied contractual term that required PerkinElmer to use reasonable efforts to develop and promote Sonoran's technology. Accordingly, in this one respect, we reverse the district court's grant of summary judgment and remand for further proceedings. In all other respects, we affirm.

I.

Because this appeal is from a grant of summary judgment, we view the record in the light most favorable to the non-moving parties (here Sonoran and Donahue). Morelli v. Webster, 552 F.3d 12, 15 (1st Cir.2009).

Sonoran is an Arizona corporation founded in 1997 by Donahue, an engineer and businessman, to develop and market high-speed computer-to-plate ("CTP") technology to the newspaper and graphic arts industries. The CTP technology developed by Sonoran was intended to be a high-speed digital printing alternative, superior to the costly and time-consuming analog process required by conventional plate technology. Sonoran's CTP technology required a greater initial capital investment from customers than conventional technology (approximately $500,000 per unit), but potentially offered significant cost savings over the life of the product. As of 2000, Sonoran had developed a prototype CTP machine, but had not made any sales. Although there was interest in Sonoran's product, some customers expressed concern as to whether the company was too small to assure long-term support for the unproven technology. By mid-2000, Sonoran was running out of cash despite Donahue's investment of approximately $3.5 million of his own money in the company. Facing these challenges, Sonoran sought a purchaser to undertake the continued development and marketing of its CTP technology.

PerkinElmer is a publicly-traded Massachusetts corporation headquartered in Wellesley, Massachusetts. In late 2000, Donahue approached PerkinElmer to determine if PerkinElmer was interested in purchasing Sonoran's CTP Business. PerkinElmer was amenable to Donahue's overtures, and after negotiations, agreed to purchase substantially all of Sonoran's assets and business.

PerkinElmer and Sonoran executed an "Asset Purchase Agreement" ("Purchase Agreement") on May 2, 2001. Under § 1.4 of the Purchase Agreement, at closing PerkinElmer paid $3.5 million. Some significant portion of that amount went directly to Sonoran's unsecured creditors. In addition, §§ 1.6 and 6.2 of the Purchase Agreement (entitled "Additional Earnout Payments") provided that PerkinElmer would pay Sonoran additional amounts if certain CTP product sales targets were met each year between 2001 and 2006. Under the terms of the earn-out provisions, PerkinElmer would pay Sonoran $750,000 if at least three CTP machines were sold in the first year following closing, $1.5 million (less any previously paid earn-out amounts) if at least ten machines were sold by the end of the second year, and additional amounts if certain gross margin targets on sales of CTP machines were met. The additional earnout payment (over and above the $1.5 million) during the five year payout period was a maximum of $2 million.

Also relevant to this dispute are § 6.1 and § 6.3 of the Purchase Agreement. Section 6.3, entitled "Sharing of Data," provided in part that "The Parties agree that from and after the Closing Date they shall cooperate fully with each other to facilitate the transfer of the Acquired Assets from the Seller to the Buyer and the operation thereof by the Buyer." Purchase Agreement § 6.3(b) (emphasis added). Section 6.1 stated that "The Buyer or a subsidiary of the Buyer shall offer employment to those Employees identified on Schedule 6.1 attached hereto. . . ." Schedule 6.1, in turn, listed eight Sonoran employees and stated whether or not each had accepted an offer of employment from PerkinElmer. The only employee on Schedule 6.1 who had not accepted an employment offer before execution of the Purchase Agreement was Norm Bogen, Sonoran's chief of sales and marketing and principal salesman.

PerkinElmer also entered into a separate employment agreement ("Employment Agreement") with Donahue, under which Donahue was to serve as "Site Leader and General Manager" of the CTP Business for PerkinElmer for a salary of $150,000 per year. The Employment Agreement also specified that Donahue would be eligible to receive, for five years, bonuses (limited in the aggregate to $6.6 million) based on CTP sales and to be calculated in a manner similar to the earn-out payments potentially payable to Sonoran. The Annual Bonus Section of the Employment Agreement stated that Donahue would "have the right to consult with [PerkinElmer] regarding the pricing of [CTP] Product sales."

Upon closing, Sonoran's CTP Business (which remained located in Tucson, Arizona) became part of PerkinElmer's Azusa, California-based Lithography Systems division ("Lithography").

It is undisputed that the CTP Business, as operated by PerkinElmer, was a failure. Between May 2001 and October 2004, only one CTP unit was sold and no additional amounts were paid under the provisions of the Purchase Agreement or Employment Agreement to Sonoran or Donahue. According to Sonoran and Donahue, the CTP Business's failure to thrive was the avoidable result of a series of unreasonable and bad faith decisions by PerkinElmer.

By 2004 PerkinElmer was pursuing an exit strategy for the CTP Business. In September 2004 PerkinElmer sold its CTP assets to MacDermid, Inc. In October 2004 PerkinElmer shuttered the CTP Business and laid off the associated staff, including Donahue.

On November 20, 2006, Sonoran and Donahue sued PerkinElmer in the United States District Court for the District of Massachusetts basing jurisdiction on diversity of citizenship. Insofar as is pertinent to this appeal, Sonoran and Donahue sued to recover on four separate theories. First, Sonoran alleged that PerkinElmer breached the express terms of the Purchase Agreement by failing to "cooperate fully" with Sonoran and by failing to hire Bogen in accordance with §§ 6.3 and 6.1 respectively of the Purchase Agreement. Second, Sonoran and Donahue claimed that PerkinElmer breached the implied covenant of good faith and fair dealing in both the Purchase Agreement and the Employment Agreement by engaging in bad faith conduct. Third, Sonoran claimed that PerkinElmer breached the implied terms of the Purchase Agreement by failing to make good faith and reasonably competent and diligent efforts to develop, market, and sell Sonoran's CTP products. Finally, Sonoran contended that PerkinElmer violated Chapter 93A, Mass. Gen. Laws ch. 93A § 11, by engaging in unfair or deceptive conduct.¹

Following discovery, the district court granted summary judgment to PerkinElmer on all four claims. The court held that no express term of the Purchase Agreement had been violated. With regard to breach of the implied covenant of good faith and fair dealing in both the Purchase and Employment Agreements, the court held that "[t]he parallel economic interests of the parties compels a conclusion that PerkinElmer did not intend to deny Plaintiffs the fruits of the contract[s]" and thus that no breach could be shown. Sonoran, 590 F.Supp.2d at 211. The court added that "[e]ven were this Court to find that PerkinElmer intended to deny the Plaintiffs the benefit of the contractual earnouts, on the record before the Court, the Plaintiffs would have great difficulty establishing that PerkinElmer's conduct caused the injuries the Plaintiffs allege" and that "they have not presented evidence sufficient to establish their damages with the necessary certainty." Id. The court further found that the Purchase Agreement contained no implied "obligation to continue operating the CTP Business" in the face of millions of dollars of losses. Id. at 206. Finally, the court held that Sonoran's Chapter 93A claim must fail because the claim relies exclusively on the same set of operative facts as the Plaintiffs' failed common law claims, and thus summary judgment was appropriate on that claim as well. Id. at 212.

Sonoran and Donahue timely appealed from the judgment of the district court dated December 23, 2008, and we have jurisdiction under 28 U.S.C. § 1291.

II.

We review the district court's grant of summary judgment de novo, drawing all reasonable inferences in favor of the nonmoving party. Fenton v. John Hancock Mut. Life Ins. Co., 400 F.3d 83, 87 (1st Cir.2005).

A. Breach of the Express Terms of the Purchase Agreement

Sonoran first contends that...