No. 24-1350

DAHUA TECHNOLOGY USA, INC., Plaintiff, Appellant,

v.

FENG ZHANG, Defendant, Appellee.

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Indira Talwani, U.S. District Judge]

Before

Rikelman, Lynch, and Aframe, Circuit Judges.

Daron L. Janis, with whom Daryl J. Lapp and Locke Lord LLP were on brief, for appellant. Benjamin Flam, with whom Philip J. Gordon and Gordon Law Group LLP were on brief, for appellee. Jeffrey M. Lipshaw, Suffolk University Law School, on brief for Contract Law Scholars, amicus curiae.

May 12, 2025 AFRAME, Circuit Judge. This is the second appeal in a protracted contract dispute between Dahua Technology USA, Inc. ("Dahua") and Feng "Frank" Zhang, a former Dahua executive. See Dahua Tech. USA, Inc. v. Zhang, 988 F.3d 531, 539-40 (1st Cir. 2021). Zhang alleges that Dahua breached its obligation to pay him severance of $680,000 per month for sixteen months. Dahua maintains that the parties only intended Zhang to receive a total severance of $680,000, paid in sixteen monthly installments.

Dahua sued under diversity jurisdiction and asserted claims for reformation of the relevant contract and breach of the implied covenant of good faith and fair dealing. Zhang counterclaimed for breach of contract. After this Court vacated a grant of summary judgment in Dahua's favor, the parties proceeded to an eleven-day bench trial on whether unilateral or mutual mistake infected the severance provision at issue. Ultimately, the district court concluded that the severance provision contained a mistake that could not be fixed under Massachusetts law and therefore must be enforced "as written." Dahua Tech. USA, Inc. v. Zhang, No. 1:18-CV-11147-IT, 2024 WL 1075066, at *1 (D. Mass. Mar. 12, 2024). The district court accordingly entered judgment for Zhang in the amount of $10,200,000, plus prejudgment interest. Dahua appeals. Because we conclude that the inartfully drafted severance provision is ambiguous, we vacate the judgment

- 2 - and remand for this dispute to be resolved consistent with extrinsic evidence of the parties' intent.

BACKGROUND

We begin by summarizing "the relevant facts as found by the district court . . . consistent with record support." Nevor v. Moneypenny Holdings, LLC, 842 F.3d 113, 116 (1st Cir. 2016).

Dahua is a United States subsidiary of Zhejiang Dahua Technology Co., Ltd. ("Zhejiang"), a publicly listed Chinese surveillance technology company based in Hangzhou, China. Dahua maintains corporate offices in Waltham, Massachusetts. In January 2016, Zhang assumed an executive role at Dahua as its Chief Strategy Officer, Vice President, and President of North American and Enterprise Sales.

Zhang's employment terms were set forth in a single-page agreement dated November 5, 2015 (the "2015 Employment Agreement"). Zhang was to receive a one-time grant of Dahua common stock and an annual base salary of $510,000 for a three-year employment term. The 2015 Employment Agreement provided that Zhang's annual base salary was "conditionally guaranteed," meaning that it remained payable in full even if the company terminated Zhang for cause.1

1 The 2015 Employment Agreement contained a carveout in the event of a termination for "illegal conduct or com