Court Opinion

ID: 6793439
Source: CourtListenerOpinion
Date Created: 2022-07-21 01:14:19.793719+00
Date Added: 2024-06-11T16:03:05.172374
License: Public Domain

Pfeifer, J.,
dissenting.
{¶ 29} The majority opinion’s reliance on the safe-harbor presumption is misplaced, as shown by one simple fact: Official Comment 3 to Uniform Commercial Code (“UCC”) section 2-305, which introduced the concept of a safe-harbor presumption, has never been adopted by the General Assembly. See Am.S.B. No. 5, 129 Ohio Laws 13, 28. The safe-harbor presumption is not part of the law of Ohio, despite the majority opinion’s insouciant belief to the contrary.
{¶ 30} “Good faith” is generally treated as incorporating both subjective and objective standards. Although R.C. 1302.18 deals exclusively with open-price terms, it does not define “good faith” differently from its customary meaning. Many different jurisdictions in many different contexts, including in the context of an open-price term, define “good faith” as requiring both subjective and objective analysis. I am more persuaded by the bulk of these cases than by the fact that three out of four jurisdictions (one of which, in my view, mistakenly applied Ohio law) have decided that an open-price term is susceptible only of objective analysis. See Bhatia v. Debek (2008), 287 Conn. 397, 412, 948 A.2d 1009, quoting Kendzierski v. Goodson (1990), 21 Conn.App. 424, 429-430, 574 A.2d 249 (“In common usage, the term good faith has a well defined and generally understood meaning, being ordinarily used to describe that state of mind denoting honesty of purpose, freedom from intention to defraud, and, generally speaking, means being faithful to one’s duty or obligation. * * * Whether good faith exists is a question of fact to be determined from all the circumstances”); Tonka Tours, Inc. v. Chadima (Minn.1985), 372 N.W.2d 723, 728 (determining good faith “necessarily involves factual findings. * * * It is for the trier of fact to evaluate the credibility of a claim of ‘honesty in fact’ and, in doing so, to take account of the reasonableness or unreasonableness of the claim”); Smalygo v. Green (Okla.2008), 184 P.3d 554, 559 (“By requiring good faith, the Legislature did not create an ambiguity nor did it render the provision vague. Rather, it employed a well-known legal concept that applies to a variety of situations and transactions. For example, the Uniform Commercial Code defines ‘good faith’ as ‘honesty in fact and the observance of reasonable commercial standards of fair *63dealing.’ * * * Similarly, the concept of subjective honesty combined with objective reasonableness is found in an insurer’s ‘implied-in-law duty to act in good faith and deal fairly with the insured to ensure that the policy benefits are received.’ Christian v. Am. Home Assurance Co., 1977 OK 141, ¶ 8, 577 P.2d 899, 901”); Simmons v. Jenkins (1988), 230 Mont. 429, 435, 750 P.2d 1067 (“the breach of a duty of good faith is a question of fact not susceptible to summary judgment” [emphasis sic]); Miller Brewing Co. v. Ed Roleson, Jr., Inc. (2006), 365 Ark. 38, 45’ 223 S.W.3d 806 (in determining whether the Miller Brewing Company violated the Arkansas Franchise Practices Act, Ark.Code Ann. 4-72-201 et seq., the Supreme Court of Arkansas stated that “[w]hether Miller dealt with the franchise in a commercially reasonable manner and in good faith is a fact question for the jury”); Garrett v. BankWest, Inc. (S.D.1990), 459 N.W.2d 833, 841 (“Good faith is derived from the transaction and conduct of the parties. Its meaning varies with the context and emphasizes faithfulness to an agreed common purpose and consistency with the justified expectations of the other party”); and Brunswick Hills Racquet Club, Inc. v. Route 18 Shopping Ctr. Assoc. (2005), 182 N.J. 210, 224-225, 864 A.2d 387, quoting 4 Williston on Contracts (3d Ed.1961), Section 610B (“The covenant of good faith and fair dealing calls for parties to a contract to refrain from doing ‘anything which will have the effect of destroying or injuring the right of the other party to receive’ the benefits of the contract”).
{¶ 31} The majority opinion dismisses these cases as being of “limited value” because they do not specifically address open-price terms. But “good faith” does not have a different meaning in Ohio, which has not adopted the UCC comments, when used with open-price terms than when used in any other context. Although the cases mentioned above discussed “good faith” in a variety of contexts, the courts agree that it is not possible to determine whether a party acted in “good faith” without a subjective inquiry. See Allapattah Servs., Inc. v. Exxon Corp. (S.D.Fla.1999), 61 F.Supp.2d 1308, 1322, fn. 24 (the UCC “imposes a duty on merchants to meet good faith requirements that are measured both subjectively and objectively”).
{¶ 32} We have had little occasion to discuss “good faith” in Ohio other than to parrot the Revised Code. See Master Chem. Corp. v. Inkrott (1990), 55 Ohio St.3d 23, 28, 563 N.E.2d 26 (“ ‘Good faith’ is defined in UCC 1-201(19), R.C. 1301.01(S), as ‘honesty in fact in the conduct or transaction concerned’ ”); Arcanum Natl. Bank v. Hessler (1982), 69 Ohio St.2d 549, 554, 23 O.O.3d 468, 433 N.E.2d 204 (same). But we have defined “bad faith” as “ ‘that which imports a dishonest purpose and implies wrongdoing or some motive of self-interest.’ ” Master Chem., 55 Ohio St.3d at 28, 563 N.E.2d 26, quoting Smith v. Halverson (S.D.1978), 273 N.W.2d 146, 151 (Wollman, C.J., dissenting). See Black’s Law Dictionary (8th Ed.2004) 713 (“good faith” is defined as the “absence of intent to *64defraud or to seek unconscionable advantage”). Tom-Lin Ents., Inc. v. Sunoco, Inc. (R & M) (C.A.6, 2003), 349 F.3d 277, on which the majority opinion relies, clearly misinterpreted Master Chem. in concluding that “good faith” requires only objective inquiry. The definition of “bad faith” in Master Chem. is the closest that opinion came to addressing the issue before us, and it does not support the conclusion reached by the court in Tom-Lin or the conclusion reached by the majority in this case. Master Chem., 55 Ohio St.3d at 28, 563 N.E.2d 26.
{¶ 33} Although Shell cited several cases from federal courts to support its contention that prices set pursuant to an open-price term are subject to only objective inquiry, none of them are persuasive. Ajir v. Exxon Corp. (May 26, 1999), C.A. 9 Nos. 97-17032 and 97-17134, 185 F.3d 865, 1999 WL 393666, did not address “good faith” but only whether the price charged was “commercially reasonable.” Id. at *7. Schwartz v. Sun Co., Inc. (C.A.6, 2002), 276 F.3d 900, 905, does not support Shell’s contention, because the court addressed only the commercially reasonable aspect of good faith. USX Corp. v. Internatl. Minerals & Chans. Corp. (Feb.8, 1989), N.D.Ill. No. 86 C 2254, 1989 WL 10851, *1, does not support Shell’s contention, because the court emphasized only that the obligation to fix a price in good faith does not “impose a requirement for a seller to match the lowest price available,” an issue that is not before us. Adams v. G.J. Creel Sons, Inc. (1995), 320 S.C. 274, 279, 465 S.E.2d 84, does not support Shell’s contention, because the court stated only that the plaintiff did not produce evidence that the price fixed by the defendant was unreasonable. Richard Short Oil Co., Inc. v. Texaco, Inc. (C.A.8, 1986), 799 F.2d 415, 422-423, also does not speak directly to subjective or objective inquiry; the court concluded that Short had not presented sufficient evidence to support a claim that Texaco did not act in good faith when it set a cap on rebates, in part because Short did not show that Texaco was dishonest or had a bad motive to injure Short. Wayman v. Amoco Oil Co. (D.Kan.1996), 923 F.Supp. 1322, 1349, does not support Shell’s contention. In Wayman, the court concluded that the plaintiffs could not establish that Amoco had set its price in bad faith. That court stated, however, that “[i]f there was evidence that Amoco had, for example, engaged in discriminatory pricing or tried to run plaintiffs out of business, then the court’s decision might be different.” T.A.M., Inc. v. Gulf Oil Corp. (E.D.Pa.1982), 553 F.Supp. 499, 509, does not support Shell’s contention. The court stated, with respect to good faith, that “[t]he plaintiffs have not alleged that the prices they were asked to pay differed from those demanded of other Gulf dealers.” In short, none of these cases provide a reason to conclude that the analysis of whether a defendant acted in good faith in setting a price under an open-price term is amenable only to objective inquiry.
*65{¶ 34} The majority opinion also relies on Shell Oil Co. v. HRN, Inc. (Tex. 2004), 144 S.W.3d 429, in which the Supreme Court of Texas considered the issue that is before us and concluded that open-price terms are subject only to objective inquiry. Because the court in HRN relied on the readily distinguishable federal cases discussed above and on the safe-harbor presumption, which Ohio has not adopted, this court should not rely on HRN. See Bob’s Shell, Inc. v. O’Connell Oil Assoc., Inc. (Aug. 31, 2005), D.Mass. No. 03-30169, 2005 WL 2365324 (the court rejected the logic and conclusion of HRN and stated that it agreed “with Plaintiffs’ assertion that [UCC] section 2-305’s purpose of preventing price discrimination should bar a supplier from trying to drive its dealers out of business”).
{¶ 35} “Good faith” in the context of open-price terms should be subject to both objective and subjective inquiry. Even courts and commentators who have written in favor of the safe-harbor presumption have concluded that an intent to drive a contractual partner out of business might overcome the presumption. Wayman, 923 F.Supp. at 1349; Berry, Byers, and Oates, Open Price Agreements: Good Faith Pricing in the Franchise Relationship (2007), 27 Franchise L.J. 45, 51. See Wilson v. Amerada Hess Corp. (2001), 168 N.J. 236, 247, 773 A.2d 1121 (“various courts have stated that a party must exercise discretion reasonably and with proper motive when that party is vested with the exercise of discretion under a contract” [emphasis added]). I can conceive of situations in which nondiscriminatory pricing could violate “good faith.” For instance, in this case, it is alleged that Shell charged all of its similarly situated franchisees the same price, and it is alleged that that price was set too high for them to profitably operate a gas station. In that situation, even though the pricing was nondiscriminatory, it was designed to drive a contractual partner out of business. So much for the concept of a partnership.
{¶ 36} I believe that “good faith” as defined in R.C. 1302.01 requires parties to act both honestly in fact and according to reasonable commercial standards. A court’s analysis of a merchant’s good faith, then, should be both subjective and objective. Furthermore, the safe-harbor presumption, even though not part of the law of Ohio, only applies in the normal case; at a minimum, the appellants should be allowed to attempt to establish that this is not a normal case. I would reverse the judgment of the court of appeals and remand the cause for further consideration consistent with this opinion. After this opinion becomes public, all franchisees in Ohio should watch their wallets very carefully because their franchisors will no longer be held to subjective good-faith standards. Instead, the law of the ocean applies: the big fish are free to consume smaller fish at will. Apparently, not until the waters are exclusively inhabited by a few great white sharks will the majority decide they need a bigger boat or a more robust interpretation of the UCC.
Robert E. Sweeney Co., L.P.A., Bernard Goldfarb, and Sean S. Kelly; and O’Quinn Law Firm and Anthony E. Farah, for appellants.
Baker & Hostetler, L.L.P., Thomas R. Lucchesi, and Lora M. Reece; and Baker Botts, L.L.P., Thomas R. Phillips, and David M. Rodi, for appellees.