FRED KLEINER, on behalf of himself and all others similarly situated v. CENGAGE LEARNING HOLDINGS II, INC.; CENGAGE LEARNING, INC.; DOE AFFILIATED ENTITIES 1-10
No. 22-1451
United States Court of Appeals For the First Circuit
April 19, 2023
Kayatta, Lynch, and Gelpí, Circuit Judges.
Richard Weingarten, with whom David Slarskey, Slarskey LLC, Edward V. Colbert III, David Koha, and Casner & Edwards, LLP, were on brief, for appellant.
Michael R. Gottfried, with whom Duane Morris LLP was on brief, for appellees.
KAYATTA, Circuit Judge. Fred Kleiner claims that Cengage Learning Holdings II, Inc., and Cengage Learning, Inc. (collectively, “Cengage“) committed unfair and deceptive business practices under Massachusetts law by intentionally obfuscating information regarding the sales of his published books. Cengage parries that a choice of law clause in its contract with Kleiner bars his suit against it. The district court agreed with Cengage and granted its motion to dismiss. We disagree, and find that the choice of law clause does not bar this lawsuit. Our reasoning follows.
I.
Because we are reviewing the dismissal of a complaint, we take all allegations in the complaint as true and draw all reasonable inferences in the plaintiff‘s favor. City of Mia. Fire Fighters’ & Police Officers’ Ret. Tr. v. CVS Health Corp., 46 F.4th 22, 30 (1st Cir. 2022). Fred Kleiner is a professor emeritus at Boston University who has written several academic textbooks. In 2005, Kleiner entered into a publishing agreement with Wadsworth Publishing Company (“Wadsworth“), Cengage‘s predecessor in interest. Under the agreement, Kleiner agreed to author and deliver certain academic works. Wadsworth, in turn, agreed to publish and market the works, and to pay Kleiner royalties as specified in the agreement. The agreement contains two “escalator levels,” which increase Kleiner‘s royalty percentage once a certain number of aggregate units are sold. The agreement also imposes a reporting obligation: The publisher must “report on the sale of the Work in March and September of each year, for the six-month period ending the prior December 31 and June 30, respectively.” Finally, the agreement contains a choice of law provision, which states that “[t]his Agreement shall be construed and governed according to the laws of the State of New York.”
Cengage is a publisher and distributor of textbooks and other academic material. It acquired Wadsworth and, with it, a relationship with Kleiner. Cengage and Kleiner thereafter twice amended the agreement
After entering and emerging from bankruptcy around 2013-2014, Cengage shifted its focus from a traditional textbook sales model to a subscription model. In the new model, called Cengage Unlimited, students can pay a single-price subscription fee per semester for Cengage‘s entire catalog, rather than purchasing books individually. To fit this new business model, Cengage designed a new method of calculating royalties owed to authors, as it no longer simply sold discrete units of an author‘s work. Under the new method, Cengage allocates the subscription fees users pay into several different “revenue pools” based on the type of material included in the subscription (e-books, courseware supplements, or print rentals) and assigns authors’ works into one of the revenue pools. Authors are then paid royalties from the revenue pool based on several variables, including (1) the author‘s contractual royalty rate, (2) the number of “uses” of the work, and (3) the net price as a percentage of total revenue for each title and product type.
Kleiner claims that Cengage exploited opportunities for obfuscation and deception that resulted from this new, more complex method of calculating royalties. Kleiner alleges that Cengage provided authors with incorrect and otherwise confusing reports, and then refused to provide straightforward responses to author inquiries that would have revealed that Cengage was not paying the full amount of royalties due to the authors. In a proposed amended complaint submitted along with his opposition to Cengage‘s motion to dismiss, Kleiner further alleges that Cengage sought to leverage authors’ confusion by negotiating new agreements with terms more favorable to Cengage.
Kleiner‘s putative class action complaint against Cengage on behalf of himself and other authors alleges a single count for violation of
Cengage moved to dismiss the complaint on the grounds that the choice of law clause in Kleiner‘s publishing agreement bars the assertion of a claim arising only under Massachusetts law. Cengage also argued that even if Massachusetts law applies, the complaint fails to state a claim under Chapter 93A.
The district court granted Cengage‘s motion, reading the choice of law clause as “mandating that all disputes be resolved according to New York law.” The court held the clause enforceable and characterized Kleiner‘s claim as “‘essentially duplicative’ of a contract claim“; therefore, the court reasoned, it was barred by the choice of law clause. The district court did not address whether the complaint failed to state a claim under Chapter 93A.
Kleiner appealed. He argues that the agreement‘s selection of New York law is unenforceable, and that even if it is enforceable, its selection of New York law to construe and govern the agreement does not bar Kleiner‘s statutory claim under
II.
We review the district court‘s dismissal of a complaint de novo. City of Mia. Fire Fighters’ & Police Officers’ Ret. Tr., 46 F.4th at 30; see also Robidoux v. Muholland, 642 F.3d 20, 22 (1st Cir. 2011) (applying de novo review to choice of law determinations).
We begin with the language of the choice of law clause itself. In determining the scope of that clause, we will assume without deciding that the parties are correct that we should apply the choice of law principles of the forum state -- here, Massachusetts. See, e.g., Patton v. Johnson, 915 F.3d 827, 837 (1st Cir. 2019).
The clause reads, in pertinent part: “This Agreement shall be construed and governed according to the laws of the State of New York.” Kleiner argues that this clause is too narrow to govern his claim because it directs only that the “Agreement . . . be construed and governed” in accordance with the laws of New York. His claim, he says, is not about how the agreement should be construed or governed; rather, his complaint asserts that Cengage‘s reporting practices are unfair and deceptive, which does not implicate any dispute concerning the construction of the agreement.
Cengage counters by pointing to Northeast Data Systems v. McDonnell Douglas Computer Systems Co., 986 F.2d 607 (1st Cir. 1993), in which we held that a contractual choice of law clause precluded the assertion of
Subsequently, in Vertex Surgical, Inc. v. Paradigm Biodevices, Inc., 390 F. App‘x 1 (1st Cir. 2010) (Souter, J.), we found that a choice of law clause stating that “Massachusetts law exclusively shall govern all terms of this Agreement” did not bar a claim brought under a Georgia statute, because “the narrow choice of law provision” did not state that the “rights of the
The clause at issue in this case states only that “[t]his Agreement shall be construed and governed” according to New York law. It does not otherwise select any state‘s law as governing the parties’ rights and obligations that are created by statute. Nor does it “mandat[e],” as the district court mistakenly asserted, “that all disputes be resolved according to New York law.” Therefore, the agreement does not suggest that the parties agreed that New York law would govern the adjudication of a claim that Cengage breached a statutory duty imposed by Massachusetts law. This conclusion is supported by Jacobson‘s determination that a choice of law clause stating an agreement was “to be construed under and governed by” one state‘s law does not extend to bar a statutory claim under another state‘s law. 646 N.E.2d at 746 n.9.
Cengage‘s argument that it is impossible to resolve Kleiner‘s claim without construing the contract does not undercut this conclusion. Consider for example a simple contract that contained a choice of law clause like the one in this case, and stated that A will pay B $1 per book sold by A. Imagine further that A sold 200 books but convinced B to accept $100 by preparing and sending to B in Massachusetts a doctored invoice falsely reporting only 100 books sold. In such a scenario, were there any dispute about construing the contract (e.g., can parol evidence be considered?), New York law would govern that question (assuming as we do here that the choice of law claim is enforceable). But that fact would provide no reason to preclude a fraud claim under Massachusetts law, nor would it require that New York law govern the fraud claim. See First Marblehead Corp. v. House, 473 F.3d 1, 8-9 (1st Cir. 2006) (applying Delaware law to contract and promissory estoppel claims pursuant to choice of law clause stating that plan‘s provisions “shall be governed by and interpreted in accordance with” Delaware law, but applying Massachusetts law to negligent misrepresentation claim). So too, here, if Cengage deceived an author in reporting what royalties were due under the contract as construed under New York law, nothing in the contract would dictate the choice of law to be applied in determining whether that alleged deception was
Finally, we decline the parties’ invitation to rule on whether Kleiner‘s complaint otherwise states a claim under Chapter 93A. Although the parties point out that we could address this issue in our discretion, we are not obligated to do so. See Singleton v. Wulff, 428 U.S. 106, 121 (1976) (“The matter of what questions may be taken up and resolved for the first time on appeal is one left primarily to the discretion of the courts of appeals . . . .“). We thus abide by the “general rule” that “a federal appellate court does not consider an issue not passed upon below.” Id. at 120; see also United States ex rel. Est. of Cunningham v. Millennium Lab‘ys of Calif., Inc., 713 F.3d 662, 675-76 (1st Cir. 2013) (remanding for district court to consider whether the relator had stated a claim after vacating order dismissing complaint on jurisdictional grounds).
III.
For the foregoing reasons, we reverse the judgment of the district court and remand for further proceedings consistent with this opinion.