Court Opinion

ID: 154466
Source: CourtListenerOpinion
Date Created: 2010-08-14 03:57:14+00
Date Added: 2024-06-11T08:51:17.925911
License: Public Domain

F I L E D
                                                                      United States Court of Appeals
                                                                              Tenth Circuit
                      UNITED STATES COURT OF APPEALS
                                                                             JAN 30 1997
                                   TENTH CIRCUIT
                                                                         PATRICK FISHER
                                                                                  Clerk

 KANSAS TEACHERS CREDIT
 UNION,

          Plaintiff - Appellant,
                                                           No. 96-3126
 v.
                                                     (D.C. No. 94-1524-DES)
                                                       (District of Kansas)
 MUTUAL GUARANTY
 CORPORATION,

          Defendant - Appellee.

                             ORDER AND JUDGMENT *

Before BALDOCK, KELLY and LUCERO, Circuit Judges.

      Plaintiff Kansas Teachers Credit Union (“KTCU”) appeals from summary

judgment granted in favor of defendant Mutual Guaranty Corporation (“MGC”).

MGC is a nonprofit entity created to insure the deposits of its credit union

members. KTCU, a Kansas credit union, became a member of MGC in 1982 and

withdrew from membership in 1992. At issue are funds KTCU deposited with

      *
        The case is unanimously ordered submitted without oral argument pursuant to
Fed. R. App. P. 34(a) and 10th Cir. R. 34.1.9. This order and judgment is not binding
precedent, except under the doctrines of law of the case, res judicata, and collateral
estoppel. The court generally disfavors the citation of orders and judgments;
nevertheless, an order and judgment may be cited under the terms and conditions of 10th
Cir. R. 36.3.
MGC as capital contributions and special assessments (collectively, the

“deposits”). When KTCU withdrew, MGC refused to return the deposits, which

totaled just over $430,000. To support its decision, MGC cited a corporate bylaw

allowing it to retain 100% of a member’s deposits upon withdrawal.

      KTCU advances eight reasons why it is entitled to have its deposits

returned, all revolving around the propriety or enforceability of the corporate

bylaw. The eight arguments include: (1) KTCU’s compliance with the bylaw is

excused by impracticability of performance; (2) KTCU’s deposits with MGC are

to be treated as KTCU’s property under Kan. Stat. Ann. § 17-2255, and must be

returned; (3) the bylaw constitutes an unenforceable penalty; (4) MGC did not

possess the power to increase the withdrawal penalty; (5) a jury could conclude

that the bylaw is, as a factual issue, unreasonable; (6) the bylaw is unenforceable

against KTCU because it did not sign the bylaw amendment; (7) the bylaw is

unenforceable because KTCU was given too little notice before the amendment

became effective; and (8) a jury could conclude that the adoption and imposition

of the bylaw violated the implied covenant of good faith and fair dealing. In

granting summary judgment to MGC, the district court rejected each of these

arguments, save the last, which apparently was not considered by the court as a

separate defense to summary judgment.

                                         -2-
      In a recent case, Central Kansas Credit Union v. Mutual Guaranty Corp.,

102 F.3d 1097 (10th Cir. 1996), we considered the same issues on nearly identical

facts. Central Kansas Credit Union involved an MGC member that, like KTCU,

sued MGC for return of its deposits, deposits retained by MGC under the same

bylaw challenged here. Of the eight arguments raised by KTCU in this appeal,

seven were made and resolved in MGC’s favor in Central Kansas Credit Union.

Upon reviewing the record in this case, we see no facts that distinguish this case

from Central Kansas Credit Union or that would militate for a different result on

any of the seven issues that were considered and resolved in that appeal.

      The only issue KTCU raises in this appeal that was not addressed in Central

Kansas Credit Union is whether a jury could reasonably find that adoption or

application of the bylaw violated the implied covenant of good faith and fair

dealing. Under Tennessee law, which both parties agree applies to this case, “an

implied duty of good faith and fair dealing is recognized in every contract in its

performance and enforcement.” ACG, Inc. v. Southeast Elevator, Inc., 912
S.W.2d 163, 168 (Tenn. App. 1995). The substance of the duty depends on the

individual contract, and the court must look to the language contained in the

instrument and to the intention of the parties in order to impose a construction of

the contract that is fair and reasonable. Id. “There is an implied undertaking in

every contract on the part of each party that he will not intentionally or purposely

                                         -3-
do anything . . . which will have the effect of destroying or injuring the right of

the other party to receive the fruits of the contract.” Winfree v. Educators Credit

Union, 900 S.W.2d 285, 289 (Tenn. App. 1995) (quoting 17 Am. Jur. 2d

Contracts § 256 (1964)).

      While the implied duty of good faith and fair dealing applies to all

contracts, it is unclear whether Tennessee would extend the duty to the

performance of corporate bylaws, in which the relationship of the parties affected

by the instrument might differ from that of parties to a simple bilateral contract.

For the sake of argument, however, we assume that the duty does extend to

performance of bylaw provisions. See IBJ Schroder Bank & Trust Co. v.

Resolution Trust Co., 26 F.3d 370, 374 (2d Cir. 1994) (“‘The rules of contract

interpretation are generally applicable to the interpretation of bylaws.’” (quoting 8

Fletcher Cyc. Corp. § 4195 (rev. 1982))), cert. denied, 115 S. Ct. 1355 (1995);

Unigroup v. O’Rourke Storage & Transfer, 980 F.2d 1217, 1221 (8th Cir. 1992)

(noting that Missouri law “specifically implies a duty of good faith and fair

dealing in every contract or by-law provision”). We conclude that MGC did not

act in bad faith in implementing the express provisions of the bylaw.

      By retaining KTCU’s deposits, MGC did not injure the right of KTCU “to

receive the fruits of the [insurance arrangement].” KTCU’s complaint is that the

bylaw, with its 100% forfeiture provision, acted to “lock in” its membership.

                                         -4-
Appellant’s Br. at 41. This court has already considered the propriety of MGC’s

motive and has held that under the circumstances facing the thrift industry and

MGC it was reasonable as a matter of law to adopt and use the bylaw to

strengthen the association. Central Kansas Credit Union, 102 F.3d at 1109-10.

The expected fruits of KTCU’s relationship with MGC was the protection of the

credit union’s assets. The bylaw, far from injuring or destroying KTCU’s rights,

in fact helped to effectuate them. Moreover, we are unwilling to rewrite what

both parties agree is an express and unambiguous bylaw right via the rubric of the

implied duty of good faith and fair dealing: “[i]t does not follow that acting

according to the terms of the by-law is a breach of good faith and fair dealing.”

Unigroup, 980 F.2d at 1221. By applying the forfeiture bylaw upon KTCU’s

withdrawal—as it had upon the withdrawal of other credit unions—MGC did no

more than the bylaws expressly allowed, and its actions did not violate any duty

of good faith and fair dealing in its relationship with KTCU.

      For the foregoing reasons, the judgment of the district court is

AFFIRMED.

                                       ENTERED FOR THE COURT

                                       Carlos F. Lucero
                                       Circuit Judge

                                         -5-