Opinion ID: 471004
Heading Depth: 2
Heading Rank: 1

Heading: implied promise of good faith and fair dealing (raiders)

Text: 15 As recently reiterated by the California Supreme Court, [i]t is well settled that, in California, the law implies in every contract a covenant of good faith and fair dealing. Seaman's Direct Buying Service v. Standard Oil Co. of California, 36 Cal.3d 752, 768, 686 P.2d 1158, 1166, 206 Cal.Rptr. 354, 362 (1984) (en banc) (emphasis in original); see also, e.g., San Jose Production Credit Association v. Old Republic Life Insurance Co., 723 F.2d 700, 703 (9th Cir.1984). This covenant not only requires each contracting party to refrain from doing anything to injure the right of the other to receive the benefits of the agreement, id., but also [imposes] the duty to do everything that the contract presupposes that he will do to accomplish its purpose. Berkeley Lawn Bowling Club v. City of Berkeley, 42 Cal.App.3d 280, 286-87, 116 Cal.Rptr. 762, 766 (1974) (quoting Harm v. Frasher, 181 Cal.App.2d 405, 417, 5 Cal.Rptr. 367, 374 (1960)). Even where one party retains, by virtue of the contract, a right of approval or disapproval or a discretionary power over the rights of the other, such powers must be exercised within the parameters of the duty of good faith. See Larwin-Southern California, Inc., v. JGB Investment Co., 101 Cal.App.3d 626, 639-40, 162 Cal.Rptr. 52, 59 (1979); see also Seaman's, 36 Cal.3d at 776, 686 P.2d at 1171-72; 206 Cal.Rptr. at 367-68 (Bird, C.J., concurring and dissenting) (good faith requires that each party act reasonably in light of the justified expectations of the other party). 16 Most important for the present case, this implied promise of good faith and fair dealing is reciprocal, a two-way street which demands mutual compliance from the contracting parties. E.g., Commercial Union Assurance Companies v. Safeway Stores, 26 Cal.3d 912, 918, 610 P.2d 1038, 1041, 164 Cal.Rptr. 709, 712 (1980). 17 The district court provided a clear and concise statement of these principles in its jury instructions on the contract liability issue, and also instructed that [i]f both parties have breached this implied promise, neither can recover on it. The jury then found defendants liable for breaching the implied covenant. 18 We cannot find the jury's verdict on this issue to be supported by substantial evidence, and consequently must reverse the district court's decision denying judgment n.o.v. The evidence presented in this case, taken as a whole, permits only one of two conclusions: either (1) neither the Raiders nor the NFL breached the duty of good faith with respect to the contemplated franchise move from Oakland to Los Angeles, or (2) both parties so breached. Either way, the Raiders may not recover under the implied covenant. The jury's implicit conclusion, that the NFL failed to act in good faith when it refused to authorize the Raider's relocation but that the Raiders did act in good faith with respect to this issue, is not a reasonable one to be drawn from the evidence, and we find it to be untenable as a matter of law. The Raiders and their managing general partner Al Davis expressed, on various occasions prior to the vote of the NFL team owners withholding League authorization for the Raiders proposed relocation, their refusal to forego these relocation plans regardless of the wishes of the NFL. They in essence denied any contractual obligation to submit their relocation plans to the League for approval, and deliberately sought to avoid or circumvent the prescribed procedure for obtaining a vote of the other teams. In fact, the Raiders even notified the League, prior to the owners' vote, that they had officially and unilaterally moved to Los Angeles, had begun shipping some of their team assets south, and were to be referred to as thereafter the Los Angeles Raiders. It cannot reasonably be maintained that the NFL's subsequent withholding of authorization, but not these actions of the Raiders, constituted a breach of the implied promise of good faith and fair dealing. 19 In so ruling, we have had to address a question of first impression, as the district court's crucial jury instruction quoted above relies upon a novel legal principle. No California court--and, to our knowledge, no other state or federal court--has confronted the question of mutuality of good faith responsibilities in the form in which it has arisen in the present case: where both parties to a contract breach the implied promise of good faith and fair dealing with respect to the same affair, incident, or transaction, do the claims nullify each other so that neither party can recover for the breach, or can each bring suit to recover the damages which resulted from the other's breach? To look at it in a slightly different way, does a plaintiff's breach of the implied good faith promise constitute a defense to a suit against defendant for breach of the same implied promise, where both alleged breaches concerned the same episode in the parties' relationship, or is such a defendant's only recourse a separate counterclaim? 20 Because of the stark absence of case law on this issue, the reasonable policy arguments on both sides, and the possibly far-reaching ramifications of whatever rule of law is adopted on this issue in California, this would have been an appropriate question of state law to have certified for decision to the California Supreme Court. See, e.g., Aetna Insurance Co. v. Craftwall of Idaho, Inc., 757 F.2d 1030, 1034 (9th Cir.1985); Meckert v. Transamerica Insurance Co., 742 F.2d 505, 506-07 (9th Cir.1984). Unfortunately, the State of California, unlike the majority of states in this Circuit, has not yet seen fit to follow the exhortation of the Supreme Court to create legislatively a certification process whereby its courts would be empowered to accept certain questions of state law from the federal courts. See Lehman Bros. v. Schein, 416 U.S. 386, 390-91, 94 S.Ct. 1741, 1743-44, 40 L.Ed.2d 215 (1974). Thus we have been compelled to resolve this question ourselves. 21 We have been motivated by several considerations to adopt a rule whereby mutual breaches of the implied good faith obligation extinguish one another. Such a rule will tend to reduce resort to formal litigation by parties engaged in contractual disputes and misunderstandings which might be characterized as breaches of the vaguely-defined duty of good faith and fair dealing. It will encourage, instead, settlement through constructive negotiation or alternative modes of dispute resolution, thereby not only fostering the ongoing cooperation which is a primary purpose of good faith obligations, but also conserving judicial and social resources. Our willingness to pursue such policy goals has been influenced by the private nature of the breaches of contract in this case; we might have hesitated to follow such a course if other important public interests were directly at stake in litigation concerning the covenant of good faith and fair dealing. See First Beverages, Inc. v. Royal Crown Cola Co., 612 F.2d 1164, 1175 (9th Cir.) (separate counterclaim, and not mere reduction or cancellation of defendant's liability, held to be appropriate so that both public wrongs might be vindicated), cert. denied, 447 U.S. 924, 100 S.Ct. 3016, 65 L.Ed.2d 1116 (1980). Finally, we see no justice in permitting a plaintiff to complain of unfair dealing in a ransaction when he himself has not fulfilled in good faith his contractual obligations with regard to that transaction. Cf. Pond v. Insurance Co. of North America, 151 Cal.App.3d 280, 289-90, 198 Cal.Rptr. 517, 522 (1984) (unclean hands doctrine applies to suits at law as well as equity); Chafee, Coming into Equity with Clean Hands, 47 Mich.L.Rev. 1065, 1074-75, 1091-92, 1096 (1949). 22 We emphasize that our ruling does not embrace a broad rule whereby any two breaches of the implied good faith promise by opposing contracting parties constitute offsetting penalties which cancel each other out; our ruling applies only to factual contexts such as the present one, where both breaches concerned the same issue and occurred during one episode of the contractual relationship. Cf. Fibreboard Paper Products Corp. v. East Bay Union of Machinists, 227 Cal.App.2d 675, 728, 39 Cal.Rptr. 64, 97 (1964) (similar limitation in unclean hands context); Republic Molding Corp. v. B.W. Photo Utilities, 319 F.2d 347, 349 (9th Cir.1963) (same). Had the Raiders displayed bad faith during a different dispute with the NFL , a dispute that was unrelated in time and manner to the proposed relocation of the Raiders franchise, the Raiders would not have been precluded from recovering for the breach by the League in the present case. 23 On remand, the district court should reverse its denial of judgment n.o.v. for the NFL on the contract claim, and vacate the corresponding portion of the damages judgment for the Raiders.