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Schroeder v. Rynel
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MAINE SUPREME JUDICIAL COURT Reporter of Decisions
Decision: 1998 ME 259
Docket: Cum-98-57
Argued: October 6, 1998
Decided: December 9, 1998
Panel:WATHEN, C.J., and CLIFFORD, RUDMAN, DANA, SAUFLEY, ALEXANDER, and
CALKINS, JJ.
J. HOWISON SCHROEDER
v.
RYNEL, LTD., INC.
DANA, J.
[¶1] J. Howison Schroeder appeals from a judgment entered in the
Superior Court (Cumberland County, Mills, J.) granting Rynel, Ltd., Inc.'s
(Rynel) motion for a summary judgment. On appeal, Schroeder argues, inter
alia, that the trial court erred when it enforced a contractual choice of law
provision requiring the application of Delaware law to a dispute arising from
an employment agreement between Schroeder and Rynel. We disagree and
affirm the judgment of the Superior Court.
[¶2] In September 1993, Schroeder signed an employment
agreement to serve as the chief financial officer and chief operating officer
of Rivers Engineering, doing business as Rynel, Ltd. The employment
agreement provided that "[t]he interpretation and construction of this
Agreement, and all other matters relating hereto, shall be governed by the
laws of the State of Delaware."
[¶3] When the parties signed the employment agreement, Schroeder
resided in Pennsylvania and Rynel was a Maine corporation with its principal
place of business in Maine. Rynel, however, had plans to incorporate in
Delaware at the urging of potential investors who sought a predictable body
of corporate law to govern their investment. These investors wanted
Delaware law to govern all material contracts, including executive
employment contracts. Schroeder supported and encouraged Rynel's
incorporation in Delaware. Rynel incorporated as a Delaware corporation in
March 1994.
[¶4] In December 1995 Mid-Atlantic Holdings, L.P., agreed to
provide financing for Rynel subject to certain conditions. The Mid-Atlantic
agreement required Rynel to defer 50% of the salaries of management
employees, including Schroeder, and not reinstate these management
salaries to their prior levels or pay the deferred amounts until (1) the Board
of Directors voted to approve the action, (2) Rynel paid in full certain
outstanding loan balances, and (3) Fleet Bank released certain loan
guarantors. The Board of Directors was reconfigured to include Schroeder,
and Schroeder agreed to these conditions.
[¶5] Beginning in January 1997 Schroeder made demands for "past
due compensation" to the Board of Directors and the President of Rynel,
and he threatened to quit if Rynel did not pay him the amounts requested.
Because Rynel had not satisfied all of the conditions set forth in the Mid-
Atlantic agreement, Rynel refused to pay Schroeder his "past due
compensation." Finally, in May 1997 Schroeder wrote to the President of
Rynel stating that "[i]n view of the failure of Rynel to pay unpaid salary and
benefits owed to me . . . I consider that I have been terminated by the
Company without cause."
[¶6] Schroeder filed a complaint in the Superior Court against Rynel
for outstanding salary and benefits owned to him in violation of 26 M.R.S.A.
§§ 621 and 626 (1988 & Supp. 1998).{1} Schroeder did not seek recovery
pursuant to any provision of Delaware law. Rynel moved to dismiss the
complaint, arguing that the employment agreement provided that Delaware
law governs all matters related to the employment agreement and that
Schroeder had only alleged violations of Maine law. The court treated
Rynel's motion to dismiss as a motion for a summary judgment. The court
granted a summary judgment for Rynel, and Schroeder appealed.
I. CONTRACTUAL CHOICE OF LAW PROVISION
[¶7] The trial court may enter a summary judgment "if the pleadings,
depositions, answers to interrogatories, and admissions on file, together
with the affidavits, if any, referred to in the statements required by [M.R.
Civ. P.] 7(d) show that there is no genuine issue as to any material fact set
forth in those statements and that any party is entitled to a judgment as a
matter of law." M.R. Civ. P. 56(c). "On appeal from a grant of summary
judgment, we view the evidence in the light most favorable to the
nonprevailing party, and review the trial court decision for errors of law."
Greenvall v. Maine Mutual Fire Ins. Co., 1998 ME 204, ¶ 5, 715 A.2d 949,
951.
[¶8] In accordance with past decisions favoring the use of the
Restatement to resolve choice of law disputes, we adopt the guidelines of
the Restatement (Second) Conflicts of Laws section 187(2) to interpret this
contractual choice of law provision. See, e.g., Harbor Funding Corp. v.
Kavanagh, 666 A.2d 498, 500 (Me. 1995) (applying Restatement section
229); Collins v. Trius, Inc., 663 A.2d 570, 572-73 (Me. 1995) (applying
Restatement sections 145 and 146); Baybutt Constr. Corp. v. Commercial
Union Ins. Co., 455 A.2d 914, 918 (Me. 1983) (applying Restatement
section 188). Pursuant to section 187(2), we will enforce a contractual
choice of law provision "unless either (a) the chosen state has no substantial
relationship to the parties or the transaction and there is no other
reasonable basis for the parties' choice, or (b) the application of the law of
the chosen state would be contrary to a fundamental policy of a state which
has a materially greater interest than the chosen state in the determination
of the particular issue . . . ." Restatement (Second) Conflicts of Laws
§ 187(2) (1971). Applying section 187(2), we conclude that the
contractual choice of law provision in Schroeder's employment agreement
requires that Delaware law govern this dispute.
[¶9] A substantial relationship exists between Delaware and the
employment agreement because Rynel is incorporated in Delaware. See
Restatement (Second) Conflicts of Laws § 187(2)(a) (1971). Incorporation
in a state constitutes a substantial relationship. See Valley Juice Ltd., Inc. v.
Evian Waters of France, Inc., 87 F.3d 604, 608 (2d Cir. 1996); Restatement
(Second) Conflicts of Law § 187 cmt. f (1981). At the time Schroeder
signed the Employment Agreement Rynel was engaged -- with Schroeder's
encouragement -- in the process of incorporating in Delaware. Rynel
incorporated in Delaware only six months after Schroeder signed the
employment agreement. Consequently, Rynel has a substantial relationship
to Delaware. See Restatement (Second) Conflicts of Law § 187 cmt. f
(1981).
[¶10] In addition, a reasonable basis existed for the parties choice of
Delaware law. See Restatement (Second) Conflicts of Law § 187(2)(a)
(1981). If parties choose a state's laws to govern because of that state's
well-known and established body of law, then a court will enforce that
choice of law provision. See Valley Juice Ltd., Inc., 87 F.3d at 608
(enforcing parties choice of New York law to govern general distribution
agreement because of highly developed body of New York commercial law);
Restatement (Second) Conflicts of Law § 187 cmt. f (1971) ("[P]arties to a
contract for the transportation of goods by sea between two countries with
relatively undeveloped legal systems should be permitted to submit their
contract to some well-known and highly elaborated commercial law."). At
the time of the contract, investors urged Rynel to incorporate in Delaware
to avail itself of an established body of corporate law, including law
governing employment contracts. Therefore, a reasonable basis existed for
selecting Delaware law to govern employment disputes arising from
Schroeder's employment agreement.
[¶11] Schroeder contends that pursuant to section 187(2)(b), we
cannot enforce the contractual choice of law provision because 26 M.R.S.A.
§§ 621 and 626 represent a fundamental policy of Maine that would be
frustrated by the application of Delaware law to this dispute. We disagree.
[¶12] We will not enforce a contractual choice of law provision if the
"application of the law of the chosen state would be contrary to a
fundamental policy of a state which has a materially greater interest than
the chosen state in the determination of the particular issue . . . ."
Restatement (Second) Conflicts of Laws § 187(2)(b) (1971). Assuming
sections 621 and 626 set forth a fundamental policy of Maine, the
application of Delaware law to Schroeder's claim only violates that policy if
there are "significant differences in the application of the law of the two
states." Banek, Inc. v. Yogurt Ventures U.S.A., Inc., 6 F.3d 357, 362 (6th
Cir. 1993) (quoting Tele-Save Merchandising Co. v. Consumers Distrib. Co.,
Ltd., 814 F.2d 1120, 1123 (6th Cir. 1987)). We will not refuse to apply
Delaware law merely because a different result would be reached pursuant
to Maine law. See, e.g., Restatement (Second) Conflicts of Law § 187 cmt. g
(1971); Tele-Save, 814 F.2d at 1123; Barnes Group, Inc. v. C & C Products,
Inc., 716 F.2d 1023, 1031 (4th Cir. 1983). After examining the relevant
statutory provisions pursuant to Maine and Delaware law, we decline to hold
unenforceable the choice of law provision on the ground that the application
of Delaware law to Schroeder's claim violates a fundamental policy of Maine.
Compare 26 M.R.S.A. § 626 (Supp. 1998) with Del. Code Ann. tit. 19,
§§ 1103, 1112, and 1113 (1995) (governing liquidated damages, attorney
fees, and civil penalties for withholding employees' unpaid wages).
[¶13] The trial court did not err when it upheld the choice of law
provision providing that Delaware law applies to disputes arising from the
employment agreement. Schroeder only pled violations of Maine law, and,
as a result, the trial court did not err when it granted a summary judgment
for Rynel.
II. CONTRACT OF ADHESION
[¶14] Finally, Schroeder argues that he has raised a genuine issue of
material fact regarding his defense that the employment agreement was a
contract of adhesion. We disagree.
[¶15] In his affidavit in response to Rynel's motion to dismiss,
Schroeder alleged that (1) Rynel drafted the employment agreement, (2) he
negotiated the employment agreement without attorney representation, and
(3) Rynel presented the employment agreement to him with "little or no
opportunity to dicker about its terms." A contract of adhesion requires
some element of "overreaching" by a party who exploits a "vastly unequal
bargaining position." See Dairy Farm Leasing Co., Inc. v. Hartley, 395 A.2d
1135, 1139 n.3 (Me. 1978) (discussing principles of a contract of
adhesion). Schroeder's assertions fail to raise a genuine issue of material
fact with respect to the defense that the employment agreement was a
contract of adhesion.
The entry is:
Judgment affirmed.
Attorney for the Appellant:
Michael J. Waxman, Esq. (orally)
371 Fore St., Suite 303
P.O. Box 375
Portland, Maine 04112-0375
Attorneys for the Appellee:
Robert J. Keach, Esq. (Orally)
Gayle H. Allen, Esq.
Bernstein, Shur, Sawyer & Nelson
l00 Middle St.
P. O. Box 9729
Portland, Maine 04l04
FOOTNOTES******************************** {1} . Title 26 M.R.S.A. §
621 provides in pertinent part: Time of Payment . . . . 2. All employers;
payment of balance of hourly wages. Any employer . . . shall pay to its
employee, on or before the employee's next regularly scheduled payday, the
balance of the employee's earned hourly wages due to be paid which were
not paid on the date normally scheduled for payment of those wages. 26 M.R.S.A.
§ 621 (1988 & Supp. 1998). Title 26 M.R.S.A. § 626 provides
in pertinent part: Cessation of Employment An employee leaving employment
must be paid in full within a reasonable time after demand at the office
of employer where payrolls are kept and wages are paid . . . . . . . . An
action for unpaid wages under this section may be brought by the affected
employee or employees or by the Department of Labor on behalf of the employee
or employees. An employer found in violation of this section is liable for
the amount of unpaid wages and, in addition, the judgment rendered in favor
of the employee or employees must include a reasonable rate of interest,
an additional amount equal to twice the amount of those wages as liquidated
damages and costs of suit, including a reasonable attorney's fee. . . .
. 26 M.R.S.A. § 626 (Supp. 1998).
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