Opinion ID: 475295
Heading Depth: 1
Heading Rank: 4

Heading: the implied covenant of good faith and fair dealing claim.

Text: 39 Short asserts that the district court erred in directing a verdict against it on its implied covenant of good faith and fair dealing claim in which it argued that Texaco had discriminatorily applied its rebate program between Short and retail outlets. Short asserts that the rebate program amounted to a bait and switch program in which Texaco initially offered a rebate program which it then altered, thus resulting in Short's injury. Specifically, Short maintains that during the second year of the rebate program, when Texaco introduced the 150 per cent to 200 per cent ceiling on distributor rates, the result was to place Short at a severe competitive disadvantage as against Texaco's direct delivery outlets. Short insists that it was entitled to have the jury decide whether Texaco could alter the contract without violating the good faith duty to do everything that the contract presupposes. 40 With regard to the standard for a directed verdict for a claim of violation of the covenant of good faith and fair dealing, questions about what amounts to good faith or bad faith are questions of law for the court to decide. See C. Kaufman, Corbin on Contracts Sec. 654B, at 797 (1984 Supp.). Upon this record, we would have to conclude that Short presented insufficient evidence that Texaco's imposition of the cap on the rebate program amounted to a breach of the covenant of good faith and fair dealing. 41 Short asserts the district court incorrectly assumed that, to make out a prima facie case that Texaco had breached its implied covenant of good faith and fair dealing, the plaintiff had to prove dishonesty or bad motive. Short's assertion, however, would amount to allowing it to go forward with a claim for a violation of the covenant of good faith and fair dealing premised upon the mere conclusory allegation of the violation. On the contrary, we believe Short must be able to show that the breach of good faith and fair dealing was made with a prohibited motive. If no real possibility of a prohibited state of mind is shown, the mere conclusory allegation of bad faith would be insufficient to defeat a directed verdict motion. Id. The district court therefore correctly ruled, in the first instance, as to the credibility of the bad motive evidence presented by Short. 42 Upon this record, it is apparent that Short did not produce sufficient bad motive evidence; nor did it produce adequate evidence of the recapture of foregone opportunities, as have other successful claimants in this kind of case. See Conoco, Inc. v. Inman Oil Company, Inc., 774 F.2d 895, 908 (8th Cir.1985); Photovest Corp. v. Fotomat Corp., 606 F.2d 704, 727-29 (7th Cir.1979); see also Burton, Breach of Contract and the Common Law Duty to Perform in Good Faith, 94 Harvard Law Review 369, 387 (1980). Rather, the evidence demonstrates that Texaco announced that it was introducing the cap on its rebate program before the parties entered into the second contract and before Short accepted that contract. In addition, the fact that this was a nationwide program would indicate that there is no evidence of conscious indifference, willfulness, or wantonness on the part of Texaco in applying the rebate program so as to affect the contractual relationship between Short and its customers or consumers. As we stated earlier, if anything, competitive conditions in the market and Short's own bad business decisions contributed to its demise. Therefore, the district court correctly concluded that there was no evidence presented of Texaco's bad faith in its altering the rebate program. 43 In addition, it is apparent that the Uniform Commercial Code provisions on establishing an open price term provide a basis to conclude that Texaco did not act in bad faith when it introduced the cap on its rebate program. Section 85-2-305(2) of the Arkansas Annotated Statutes states that the price fixed by the seller means a price fixed in good faith. Official Comment 3 to Sec. 85-2-305 adds that in the normal case a posted price satisfies the good faith requirement. Id. Texaco's posted price, offered to all its distributors nationwide, therefore appears to satisfy Sec. 85-2-305(2). Moreover, when Short was free to buy from others if Texaco would not match prices offered by these other sellers, while Texaco was bound to fill Short's requirements whenever it so demanded, demonstrates there could be no claim of bad faith based on Sec. 85-2-305(2). See Harvey v. Fearless Farris Wholesale, Inc., 589 F.2d 451, 461 (9th Cir.1979). 44 Furthermore, Texaco's conduct conforms with the U.C.C. definition of good faith as honesty in fact and, in transactions between merchants, as the observance of reasonable commercial standards of fair dealing in the trade. Ark.Stat.Ann. Secs. 85-1-201(19), 85-2-103(1)(b) (1961). See Conoco, Inc. v. Inman Oil Company, Inc., 774 F.2d at 908. Short did not produce evidence of the pricing or rebate practices of other oil companies in Little Rock or elsewhere; nor did Short present evidence of retailer-wholesaler price margins, price rebates, or ceilings on price rebates. In sum, Short failed to present evidence sufficient to set out a claim for violation of good faith performance under Arkansas statutory law. 45 Finally, even if Short had presented some evidence of a violation of the duty of good faith and fair dealing under either the common law or Arkansas statutory law, we believe it would have been improper to submit this case to the jury in light of the ample evidence presented of Short's own bad faith in its performance of the contract. The marketing agreement between Short and Texaco required that Short not sell Texaco products to non-Texaco dealers. During the months in which Short bought in excess of the distributor ceiling, it sold a greater volume to non-Texaco dealers than it purchased beyond the ceiling levels. In fact, the testimony demonstrates that if Short had not made the sales to unbranded stations it would never have reached the ceilings. Tr. at 150. As a result, because Short complains of the amounts it would have been entitled to beyond the ceilings, and because it is apparent that Short's sales to unbranded stations, in violation of the contract with Texaco, enabled it to pass the ceilings, there is no basis for it to make out a claim that Texaco violated the covenant of good faith and fair dealing. 46 We therefore conclude that the district court did not err in directing a verdict against Short on its good faith and fair dealing claim. 47 For all of the reasons stated above, we conclude that the findings of the district court were well within the evidence and therefore affirm its summary judgment and directed verdicts.