Opinion ID: 2514285
Heading Depth: 1
Heading Rank: 5

Heading: Recovery for Breach of the Implied Covenant of Good Faith and Fair Dealing

Text: [ś 27] The City contends that once it established that it did not breach the contract, HCI could not recover for breach of the implied covenant of good faith and fair dealing and the district court erred in not granting its motions for judgment as a matter of law. The City asserts that the event HCI claimed gave rise to the breach of the implied covenant, i.e. Mr. Gillette's August 31, 2000, statement that HCI could not order the precast panels until its supplier was certified, did not breach the contract even if true because the contract unambiguously provided, first, that the architect did not have the authority to bind the City and, second, that all modifications must be in writing. Given these provisions, the City contends, Mr. Gillette's alleged statement had no effect on the contract and did not prevent HCI from ordering the precast panels from its uncertified supplier. Just as Mr. Gillette's statement did not constitute a breach of contract, the City argues, it could not constitute a breach of the implied covenant. The City asserts the issue is one of law subject to de novo review. [ś 28] HCI contends that a party can breach the implied covenant of good faith and fair dealing without breaching the express terms of the contract. It argues that an implied covenant to cooperate and not interfere with contract performance exists in every contract separate and apart from the express terms. Regardless of the express contract terms, HCI asserts, the jury reasonably could have concluded that the City breached the implied covenant when, during the first months of the contract, its representatives told HCI it could not order the precast panels from Winfrey until Winfrey was certified. Additionally, or alternatively, HCI contends the jury could have concluded the City breached the implied covenant when it did not act on HCI's change order request to substitute Gage Brothers as the precast supplier until it was too late for HCI to meet the scheduled deadline. HCI asserts the question of whether the City breached the implied covenant of good faith and fair dealing was a factual one. [ś 29] To the extent the City claims the district court erred in denying its motions for judgment as a matter of law, the following standards govern our review: Judgment as a matter of law should be granted cautiously and sparingly. However, where the evidence is not legally sufficient to support a claim, the district court has an obligation to enter such a judgment. We review de novo a decision to grant or deny judgment as a matter of law, meaning we examine the record anew affording no deference to the district court's views. The test is whether the evidence appearing in the record is such that reasonable persons could reach but one verdict. We view the evidence in the light most favorable to the nonmoving party, giving that party the benefit of all reasonable inferences that may be drawn from the evidence. When the evidence permits more than one reasonable inference or the inferences favorable to the moving party are subject to doubt, the matter is properly for the jury to decide and a motion for judgment as a matter of law must be denied. Johnson v. Reiger, 2004 WY 83, ś 8, 93 P.3d 992, 995 (Wyo.2004) (citations omitted). [ś 30] Under Wyoming law, the implied covenant requires that neither party to a commercial contract act in a manner that would injure the rights of the other party to receive the benefit of the agreement. Scherer Constr., LLC v. Hedquist Constr., Inc., 2001 WY 23, ś 19, 18 P.3d 645, 654 (Wyo. 2001). It requires the parties to act in accordance with their agreed common purpose and each other's justified expectations. Id. A breach of the implied covenant occurs when a party interferes or fails to cooperate in the other party's performance. Id. [ś 31] The implied covenant of good faith and fair dealing may not be used to create new, independent rights or duties beyond those agreed to by the parties. Id. Rather, it must arise from the language used or be indispensable to effectuate the intention of the parties as determined by the contract language, the parties' conduct and their course of dealing. Id. In the absence of evidence of self-dealing or breach of community standards of decency, fairness and reasonableness, the exercise of contractual rights alone will not be considered a breach of the covenant. Id. [ś 32] The question of whether the implied covenant of good faith and fair dealing was breached is ordinarily one of fact, focusing on the conduct alleged as constituting the breach within the context of the contract language, the parties' course of conduct and industry standards. Id. A party is entitled to judgment as a matter of law on the claim only where the actions alleged to have breached the covenant were in conformity with the clear contract language. Id. Where the evidence establishes a material dispute as to whether a party's conduct went beyond the exercise of contract rights and amounted to self-dealing or a violation of community standards of decency, fairness or reasonableness, the issue is one for determination by the fact-finder. Id. [ś 33] In claiming that it was entitled to judgment as a matter of law on the implied covenant claim, the City points to the following contract provisions: 1.1.1 THE CONTRACT DOCUMENTS The Contract Documents consist of the Agreement between Owner and Contractor (hereinafter the Agreement), Conditions of the Contract (General, Supplementary and other Conditions), Drawings, Specifications, Addenda issued prior to execution of the Contract, other documents listed in the Agreement and Modifications issued after execution of the Contract. A Modification is (1) a written amendment to the Contract signed by both parties, (2) a Change Order, (3) a Construction Change Directive or (4) a written order for a minor change in the Work issued by the Architect. . . . . 2.1.1 The Owner is the person or entity identified as such in the Agreement and is referred to throughout the Contract Documents as if singular in number. The Owner shall designate in writing a representative who shall have express authority to bind the Owner with respect to all matters requiring the Owner's approval or authorization. Except as otherwise provided in Subparagraph 4.2.1, the Architect does not have such authority. The term Owner means the Owner or the Owner's authorized representative. [ś 34] The contract identified the City as the Owner. Article 7.3 identified the City's representative as Dan Roberts, an Engineer II in the Department of Public Works. The City claims it was entitled to judgment as a matter of law on the implied covenant claim because the evidence was that its actions were in conformity with the contract, i.e. only Mr. Roberts had authority to bind the City; Mr. Gillette did not have such authority; contract modifications were required to be written; there was no written modification of the contract specification requiring certification prior to the start of production; therefore, the City did not breach the implied covenant when Mr. Gillette stated that the Architect/City needs certification before precast order. [ś 35] The difficulty with the City's claim is that the evidence established a material dispute as to whether its conduct went beyond the exercise of its contract rights. The evidence created a reasonable inference that, rather than conforming to the agreed common purpose and HCI's justified expectations, the City instead interfered and failed to cooperate with HCI's ability to perform. Scherer, ś 18, 18 P.3d at 653. HCI presented evidence to show that, despite the contract provisions, the City went along with Mr. Gillette's oral modification of the contract specification. [8] Stella Alexander, HCI's office manager, testified that she was present at the August 31 project meeting and that Mr. Roberts nodded his head in agreement when Mr. Gillette stated certification was needed before the precasts were ordered. Rosemary Shubert, HCI's financial officer, who also attended the August 31 meeting, testified Mr. Roberts seemed to agree or at least did not disagree or object to Mr. Gillette's statement. Ms. Alexander also testified that no one from the City objected to, disputed or asked for correction of the minutes of the August 31 project meeting which included Mr. Gillette's statement that certification was needed before the precasts were ordered. The September 14 project meeting minutes also stated that the precast supplier needed to be certified before HCI ordered the precasts and, again, no one from the City objected to the minutes, asked that they be corrected or even pointed out that Mr. Gillette's statement was not correct. [ś 36] Additionally, Mr. Hladky, who did not attend the August 31 meeting, testified that upon being informed about Mr. Gillette's statement by his employees after the meeting, he went to talk to Mr. Gillette and Mr. Roberts. He testified that he told Mr. Roberts they could not wait to order the precast panels, that was not the deal as stated in the contract specifications and the panels needed to be ordered then. Mr. Roberts' response was that he was responsible for job quality. Mr. Hladky testified that it was clear from Mr. Roberts' response that the City concurred with Mr. Gillette's statement that Winfrey's certification was needed before the panels were ordered. Mr. Hladky testified that after speaking with Mr. Roberts, he had Ms. Alexander send a letter the same day advising Winfrey that it needed its precast certification before HCI could order the panels. [ś 37] In addition to the evidence tending to show that the City breached the implied covenant when it went along with Mr. Gillette's oral modification of the contract specification, the evidence also permitted a reasonable inference that the City breached the covenant when it did not act on HCI's change order request to substitute Gage Brothers as the precast supplier until after the scheduled deadline had passed. Mr. Hladky testified that after Mr. Gillette told him Winfrey needed to be certified before the precast panels were ordered, he expressed his concern to the City that waiting for the certification to order the panels would delay the project. He testified that by September, when he was still being told he could not place the order until Winfrey was certified, he was considering other options. He offered to hire an inspector to watch the panels being made so as to ensure their quality. Mr. Gillette rejected the proposal because it waived the certification requirement. At his expense, Mr. Hladky offered to take Mr. Gillette to visit Winfrey's plant in the hope that upon seeing the plant Mr. Gillette would allow HCI to order the precast panels before Winfrey received certification. Mr. Gillette rejected that offer as well. Mr. Hladky requested a change order to substitute Gage Brothers, who was already certified, as the precast panel supplier. Ms. Alexander testified that on September 18, 2000, she typed the change order request and sent it to Mr. Gillette. She testified that Mr. Gillette called her a couple of days later and told her to void the request. [ś 38] Mr. Hladky then set up a special meeting with John Darrington, the city administrator and the primary contact between the City engineers and city council, in the hope that he would approve the change order request to substitute Gage Brothers for Winfrey. Mr. Darrington testified that he attended a meeting on October 5, 2000, with Mr. Hladky, Mr. Gillette and Mr. Roberts. In his October 5 memorandum following the meeting, Mr. Darrington stated that Mr. Hladky asked him to attend because he thought as city administrator Mr. Darrington could approve the change order request to substitute Gage Brothers as the precast panel supplier. Mr. Darrington responded by suggesting that perhaps Mr. Hladky could get Winfrey to assume liability for the damages that would result from the delay caused by the lack of certification. [ś 39] There is no question from the testimony that the City knew by September or early October of 2000 that the precast panels needed to be ordered or the project would be delayed and damages would result. Yet, the City took no action to allow HCI to order the precast panels from Winfrey or, alternatively, to substitute Gage Brothers as the supplier. By November 14, 2000, when the City finally approved the change order request, the scheduled deadline for the precast panels had passed. [ś 40] Viewing the evidence in the light most favorable to the nonmoving party, as we must, and giving HCI the benefit of all reasonable inferences that may be drawn from the evidence, we conclude the evidence permitted more than one reasonable inference and the inferences favorable to the City were subject to doubt. Thus, the issue of whether the City breached the implied covenant of good faith and fair dealing by interfering or failing to cooperate with HCI's ability to perform was for the jury to decide and the district court properly denied the motion for judgment as a matter of law. [ś 41] To the extent that the City contends a breach of the implied covenant claim does not survive after a finding that the contract was not breached, we point to Cathcart v. State Farm Mut. Auto. Ins. Co., 2005 WY 154, ś 25, 123 P.3d 579, 589 (Wyo.2005) in which this Court stated: [T]he two claims require proof of independent elements and are not mutually dependent, meaning one can be maintained without the other. While an insured may state causes of action for breach of contract and breach of the duty of good faith and fair dealing, the insured does not need to prevail on the breach of contract claim to prevail on the claim for breach of the duty of good faith and fair dealing. See also, State Farm Mut. Auto. Ins. Co. v. Shrader, 882 P.2d 813, 828 (Wyo.1994). The City's legal position is without support.