Opinion ID: 2636776
Heading Depth: 3
Heading Rank: 3

Heading: DCMC Breached the Covenant of Good Faith and Fair Dealing When It Made Fraudulent Misrepresentations.

Text: In the original appeal in this case we determined that the superior court failed to address ACC's three claims for breach of the covenant of good faith and fair dealing. [42] We described those claims as: (1) DCMC's failure to notify ACC that it intended to establish a new south Anchorage dealership, (2) its alleged revocation of the Wasilla letter of intent, and (3) its allegedly unreasonable demands for changes in ACC's facilities. [43] Accordingly, we remanded to the superior court to rule on these claims and to make the factual findings incident to such a ruling. [44] On remand, the superior court concluded that DCMC did not violate the covenant of good faith and fair dealing in the revocation of ACC's ability to open a dealership in Wasilla or its ability to receive Jeeps. DCMC acted in bad faith in its nondisclosure of the coming of the second Dodge dealership, but that misconduct did not cause ACC any damage. The superior court also found that these claims add little to ACC's other claims, and that ACC's scant treatment of [these claims] at the trial was an implicit recognition that they are not much more than restatements of ACC's main claims. We have held that [t]he covenant of good faith and fair dealing is implied in every contract in order to effectuate the reasonable expectations of the parties to the agreement. [45] The covenant includes subjective and objective elements, both of which must be satisfied. [46] The subjective element prohibits one party from acting to deprive the other of the benefit of the contract. [47] The objective element requires each party to act `in a manner that a reasonable person would regard as fair.' [48] In its current appeal, ACC primarily relies on the argument that DCMC breached the implied covenant of good faith and fair dealing when it accelerated its plans to open an additional Dodge dealership in south Anchorage. ACC first argues that the superior court failed to make any findings on remand on the issue of whether DCMC breached the covenant by opening the second Dodge franchise. In particular, ACC contends that the superior court did not consider evidence that there was no market justification for a second Dodge [dealership] in Anchorage and that in so doing DCMC ignored its own procedures and acted [in a manner that was] inconsistent with general industry practices and good faith dealing. ACC alleges that DCMC opened the second Dodge dealership in South Anchorage out of a desire to retaliate against ACC for bringing its lawsuit. ACC is correct that the superior court did not directly address, in its consideration of the breach of covenant arguments, the claim that DCMC violated its own procedures and industry practices when it opened the second Dodge dealership in south Anchorage. However, the superior court considered the breach of covenant arguments to be essentially a restatement of ACC's other claims, and the superior court had engaged, in an earlier section of its findings of fact and conclusions of law, in a lengthy discussion of the timeline of events leading up to, and the justifications for, DCMC's decision to open the second Dodge dealership. The superior court noted that DCMC's regional representative had communicated to his superiors a desire for a second Dodge dealer in south Anchorage in May 1998, and that the idea of a second Dodge dealership in Anchorage was being discussed as early as August 1996. The superior court also noted that Jim Dimond, the DCMC employee in Detroit responsible for market studies, visited Anchorage in October 1999 and, after reviewing additional information, requested the opening of a second Dodge dealer in south Anchorage on 26 October. The superior court then found that the events after May show that it was not a difficult process [to secure a second Dodge dealership in Anchorage] given the growth of competition and population in South Anchorage, and that had Fleck not decided to delay the request for a market study of a second Dodge dealership until after Project 2000 he would likely have gotten the study and it would likely have approved the dealership months if not years before October. These findings by the superior court  that the market conditions in Anchorage justified the addition of a second Dodge dealership, and that DCMC employees had been considering a second dealership for years prior to the conflict and litigation with ACC  are inconsistent with ACC's claims that DCMC added the second Dodge dealership in violation of its own procedures and industry practice and in retaliation against ACC. Therefore, although the superior court made these findings in a separate section, the findings informed its conclusion that DCMC's decision to open a second Dodge dealership in Anchorage did not violate the covenant of good faith and fair dealing. ACC also contends that the superior court erred by not finding that DCMC breached the covenants of good faith and fair dealing by revoking the Wasilla letter of intent. ACC fails to assert any specific arguments as to why DCMC's revocation of the Wasilla letter of intent in November 1999 violated the covenant of good faith and fair dealing. In addition, ACC fails to refute the superior court's findings that DCMC did not act precipitously in November 1999 or without a long history of conduct that made it more than reasonable for DCMC to understand that [ACC] was not going to perform as promised. [ACC's] own decisions, not DCMC's bad faith nondisclosure caused the cancellation of the Wasilla deal. ACC also claims that DCMC breached the covenant of good faith and fair dealing by making additional unreasonable and arbitrary demands for exclusive facilities. ACC does not specifically anchor this claim in either the objective or the subjective elements of the covenant. Instead, ACC makes only the blanket allegation that DCMC's unilateral demands were both objectively and subjectively inconsistent with the covenant of good faith. The superior court found that DCMC did not make unreasonable demands for ACC's Anchorage facilities and operations and, accordingly, concluded that DCMC did not violate the covenant of good faith and fair dealing in the revocation of ACC's ability ... to receive Jeeps. The superior court, therefore, supported its conclusion with findings based on the evidence in the record, and ACC failed to offer a specific legal basis for challenging the superior court's findings or conclusion. ACC's strongest claim for establishing that DCMC breached the implied covenant of good faith and fair dealing, however, is the argument that it raised in the context of its discussion of the fraudulent misrepresentation issue: that, during the course of its Project 2000 negotiations with ACC, DCMC made fraudulent misrepresentations regarding its intentions to establish additional Dodge product lines in the Anchorage region. The superior court found that ACC established the first four elements of fraudulent misrepresentation (a misrepresentation, scienter, intent to induce reliance, justifiable reliance), but failed to establish the fifth element (loss). [49] While we found that all five elements were in fact satisfied, the first four elements alone appear to be sufficient to satisfy both requirements for ACC's claim of breach of the implied covenant of good faith and fair dealing. The objective element  which requires each party to act in a manner that a reasonable person would regard as fair [50]  is clearly met in this case because no reasonable person would regard DCMC's willful misrepresentation as fair. The subjective element  which prohibits one party from acting to deprive the other of the benefit of the contract [51]  is also satisfied in this case because ACC believed that it was contracting for peace in the form of assurances that DCMC would not open new dealerships or authorize the sale of additional Dodge product lines in the Anchorage area, but was deprived of this benefit when DCMC misrepresented its intentions. DCMC permitted ACC to believe that the parties were negotiating to determine the distribution of all DCMC product lines in Anchorage under Project 2000, while all the while DCMC secretly intended to authorize the sale of at least one additional Dodge product line. As a result of this fraudulent misrepresentation, ACC never had the opportunity to play an actual, meaningful role in determining the distribution of DCMC product lines in Anchorage. Although the franchise agreements and Project 2000 agreements technically provided DCMC with the power to add dealerships and product lines to Anchorage without requiring the consent of ACC or any other dealers, once DCMC began negotiating with the dealers it had the responsibility to behave honestly and straightforwardly. Although ACC does not directly argue in this appeal that DCMC's fraudulent misrepresentations themselves represented a breach of the implied covenant of good faith and fair dealing, the parties had a full opportunity to present arguments and evidence on all five elements of fraudulent misrepresentation, and the superior court made detailed findings in the process of concluding that DCMC's actions did satisfy the first four elements. The remaining question before us is the legal determination of whether those findings and conclusions are sufficient to satisfy the elements required to establish a claim for breach of the implied covenant. We conclude that those elements are satisfied. Accordingly, we hold that DCMC breached the implied covenant of good faith and fair dealing when it made fraudulent misrepresentations regarding its intention not to establish additional Dodge product lines in the Anchorage region. We have previously indicated that the award of contract damages is an appropriate remedy in the case of a breach of the implied covenant of good faith and fair dealing. [52] As already discussed, however, ACC has not established any losses as a result of DCMC's misconduct that would entitle it to more than nominal damages. A breach of the implied covenant of good faith and fair dealing does not by itself justify punitive damages. [53] We have already noted, however, that in this case the same underlying conduct might merit punitive damages because it also constituted the tort of fraudulent misrepresentation.