Carmichael v. Adirondack Bottled Gas Corp.

CARMICHAEL_V_ADIRONDACK_BOTTLED_GAS.92-496; 161 Vt. 200; 635 A.2d 1211

[Filed 10-Dec-1993 ]

 NOTICE:  This opinion is subject to motions for reargument under V.R.A.P. 40
 as well as formal revision before publication in the Vermont Reports.
 Readers are requested to notify the Reporter of Decisions, Vermont Supreme
 Court, 109 State Street, Montpelier, Vermont 05609-0801 of any errors in
 order that corrections may be made before this opinion goes to press.


                                 No. 92-496


 Janet Carmichael and Carmichael's            Supreme Court
 Homgas Plumbing & Heating, Inc.
                                              On Appeal from
      v.                                      Washington Superior Court

 Adirondack Bottled Gas                       May Term, 1993
 Corporation of Vermont


 Stephen B. Martin, J.

 Richard E. Davis of Richard E. Davis Associates and Joseph P. Palmisano of
    Joseph C. Palmisano Associates, Barre, for plaintiffs-appellees

 J. Scott Cameron and Bernard D. Lambek of Paterson & Walke, P.C.,
    Montpelier, for defendant-appellant



 PRESENT:  Allen, C.J., Gibson, Dooley, Morse and Johnson, JJ.



      MORSE, J.   A jury awarded plaintiffs (FN1) Carmichael $160,000 against
 defendant Adirondack Bottled Gas for breaching an implied covenant of good
 faith and fair dealing in the termination of their business relationship.
 On appeal, Adirondack claims that (1) Janet Carmichael was precluded from
 bringing this action because her claims were resolved either in arbitration

 

 or in a federal antitrust case, both of those proceedings having become
 final; (2) the trial court should have directed a verdict in Adirondack's
 favor; (3) the court erroneously instructed the jury on the law of breach of
 good faith; (4) the plaintiffs waived their claim for punitive damages and
 the facts did not warrant punitive damages to be considered by the jury; (5)
 the court erred in refusing to instruct the jury on the defense of accord
 and satisfaction; and (6) the award and calculation of interest in the
 judgment order were erroneous.  We affirm.
      The evidence supports the jury's concluding that the parties began and
 ended their business relationship in the following manner:  In September
 1981, Philip and Janet Carmichael bought an existing petroleum gas dis-
 tributorship from Allen and Sharon Granger.  The transaction required
 Philip Carmichael to enter into a contractor's agreement with Adirondack.
 In general, the agreement described the terms under which Adirondack would
 supply the Carmichaels with the product which they, in turn, would retail to
 their customers.   Furthermore, the agreement contained a "key man" clause,
 which provided in part:
           This Agreement shall automatically terminate without
           written notice upon the sale or assignment of Con-
           tractor's business, the death of Philip Carmichael or
           upon any change in the capital  structure, management or
           ownership of contractor.

 (Emphasis added.)
      After experiencing ups and downs, the Carmichaels' business turned
 modestly profitable, but in the summer of 1987, the couple had grown "sick
 of the gas business" and explored with Adirondack the possibility of selling
 their distributorship for $60,000.  Adirondack was interested in acquiring
 the Carmichael business in order to convert it from a distributorship to a

 

 retail outlet.  Adirondack offered the Carmichaels $38,500.  The Carmichaels
 declined the offer.
      Six months later, on December 24, 1987, Philip Carmichael died in a
 snowmobile accident, triggering the "key man" termination provision of the
 1981 contractor's agreement.  A few days later, David Johnson, Adirondack's
 district manager, attended Philip Carmichael's funeral.  As he paid his
 respects, Johnson asked Janet Carmichael about her intentions toward the
 business.  Carmichael indicated an intention to stay in business, and
 Johnson replied that they would get together at a future time to discuss
 how she would operate the distributorship.  Shortly thereafter, Johnson
 reported the gist of this conversation to his supervisor, James Harrison.
 Harrison testified he would not have been opposed to Janet Carmichael
 continuing in the business, provided she sign a contract in her own right
 with Adirondack, but Harrison did not communicate that to her.  Instead, on
 January 5, 1988, Adirondack sent a letter to Carmichael's attorney, again
 offering to purchase the business for $38,500.  The letter gave no
 acceptance deadline, but Carmichael promptly instructed her attorney to
 inform Adirondack that she still wished to stay in business.
      On January 13, 1988, Adirondack corresponded with Janet Carmichael's
 attorney, instructing him to tell her that the offer would be withdrawn in
 five days.  Two days later, on Friday, January 15, Adirondack's attorney
 asked Carmichael if she was going to accept Adirondack's offer.  She
 replied, "I'm not going to sell.  I'm not going out of business.  I want to
 keep this business."  According to Carmichael, the attorney became "very
 upset with me and he told me at the end of the conversation that no matter
 what, whether I sold the assets to them or not, I was out of business Monday

 

 at noon."  Concluding that Adirondack would no longer supply her with fuel
 as of Monday, Carmichael laid off her employees Friday afternoon.  During
 the weekend, Carmichael sold much of her business equipment for $35,000 to
 Blue Flame Gas, a local competitor.  She did not want to sell to Adirondack
 because "they wanted to take my business away from me that we had worked
 hard for."
      On Monday, January 18, she returned to her work place and began closing
 up shop.  The phone rang repeatedly that morning with calls from customers
 needing fuel deliveries.  The calls were attended to either on site or by
 relaying the calls to Adirondack's business phone in Bolton, Vermont.  Later
 that morning, David Johnson stopped by to see Carmichael, who told him she
 had sold her trucks and discharged her employees.  She then handed him a
 list of customers who required immediate attention from Adirondack.
      Shortly after Johnson's departure, Carmichael had another telephone
 conversation with Adirondack's attorney.  According to Carmichael, the
 attorney again became upset, this time because "I wasn't going to deliver
 that day.  That I had taken him on his word that I was done at noon."  The
 attorney began yelling so loudly that Carmichael held the receiver up so
 that others who were in the office with her could hear it.
      After that phone call, Adirondack arranged a meeting for the next day,
 January 19, to transfer vital business records and to tie up loose ends as
 provided for under the distributorship agreement.  Fifteen minutes before
 the meeting, Carmichael was notified that her attorney could not be present.
 She elected to attend, but announced upon her arrival that she would not
 discuss legal questions without her lawyer present.  Despite this state-
 ment, Adirondack repeatedly asked Carmichael to accept and sign a written
 agreement that had been drafted and signed by Adirondack prior to the
 meeting.  The agreement provided for the transfer of Carmichael's remaining
 business assets.  Carmichael repeatedly refused to sign the document then
 and there, although she did sign it after the meeting.  Adirondack also
 asked at the meeting to review all of her records, including her customer
 list, route cards, accounts receivable and other records.  Concerned that
 her customers not be left without fuel in the dead of winter, Carmichael
 handed over the requested documents.  Adirondack then immediately began
 servicing the customers formerly serviced by the Carmichaels.
      The winding down of remaining business affairs between Carmichael and
 Adirondack was not smooth.  Carmichael had claims against Adirondack for the
 return of deposits, payments under the January 19 agreement, collection of
 accounts receivable, and other items.  Adirondack had claims against
 Carmichael for inventory that was not returned or otherwise accounted for,
 fuel that had been supplied but not paid for, and other items.  In March
 1989, all of these issues were submitted to arbitration by order of the
 Washington Superior Court, where Carmichael had filed suit against
 Adirondack.  The court ordered that "[c]laims raised by Plaintiff in Civil
 Action Docket Number S-12-89 WnC which do not arise out of the Contractor
 Agreement are not subject to arbitration and are properly within the
 jurisdiction of the Washington Superior Court."
      On September 24, 1990, the parties stipulated to the entry of an
 arbitration award.  The award set the various claims of the parties off one
 against another and concluded that "the adoption of the 'account resolution'
 set forth herein and the monetary award to Carmichael in the amount of
 $4,922.26 fully resolves all of the disputes which either of the parties has

 

 raised, or could have raised, arising under the Contractor Agreement, as
 amended, between the parties."               
      The arbitration proceedings, however, did not address any claim
 regarding bad faith and unfair dealing.  It dealt only with accounting
 disputes.  While the parties were in arbitration, Carmichael initiated suit
 against Adirondack in federal district court on January 5, 1990, alleging
 federal antitrust violations by Adirondack.  Eight months later, Carmichael
 was granted a stay of the state court proceedings pending the outcome of her
 federal antitrust suit.  Adirondack neither opposed the stay nor attempted
 to remove Carmichael's state claims to the federal forum.
      In December 1991, the district court dismissed Carmichael's antitrust
 suit with prejudice.  Arguing that Carmichael's remaining complaints were
 now barred by the res judicata effect of the federal court's dismissal,
 Adirondack moved for summary judgment in state court.  In April of 1992, the
 state court denied summary judgment and the parties proceeded to trial.
      After a seven-day jury trial, the trial court directed a verdict in
 Adirondack's favor on all but one count of Janet Carmichael's complaint.
 That count, alleging that Adirondack's conduct toward Carmichael following
 Philip's death amounted to a breach of the implied covenant of good faith
 and fair dealing, was submitted to the jury, which returned a verdict
 against Adirondack in the amount of $60,000 compensatory and $100,000
 punitive damages.  Thereafter, Adirondack filed several post-verdict
 motions, all of which were denied.
                                     I.
      Relying on the doctrines of res judicata and collateral estoppel,
 Adirondack first contends that the arbitration award resolving the parties'

 

 contractual disputes and the dismissal of Janet Carmichael's federal
 antitrust complaint precluded her state court action.
                                     A.
      With respect to the legal effect of the arbitration award, we note that
 the superior court record begins with Carmichael's complaint dated January
 9, 1989.  Adirondack, however, began seeking arbitration in December of
 1988 and filed a motion to compel arbitration before January 9, 1989.  The
 record that Adirondack submitted for our review contains no documents per-
 taining to these early proceedings.  The trial court decided Adirondack's
 motion to compel arbitration in March of 1989, but no transcript of the
 hearing was submitted for our review.  The court's order states specifically
 that it retained jurisdiction over claims Carmichael raised in state court
 "which do not arise out of the Contractor Agreement."  Adirondack argues
 that the court had intended for the arbitration proceedings to resolve all
 of the parties' claims against each other arising out of their business
 relationship.  This argument, however, is inconsistent with the language in
 the court's order compelling arbitration.  There are no documents in the
 record that support Adirondack's characterization of the court's intentions
 or that delineate the scope of the arbitration proceedings.  Nor does the
 record demonstrate that Adirondack objected to the court's retention of
 jurisdiction or its scope.  Consequently, Adirondack has not preserved the
 issue and there is no basis on which to give res judicata effect to the
 arbitration award.
                                     B.
      Adirondack contends that the federal court dismissal constituted a
 final judgment precluding Carmichael's state action.  We disagree that the
 federal court dismissal triggered preclusion of the state court action
 because defendant's litigation strategy throughout belies any reliance on
 the doctrines of res judicata and collateral estoppel.
       Adirondack did not ask to remove and consolidate Carmichael's state
 claims in the federal forum.  See 28 U.S.C. { 1441(a) (state court civil
 action to federal district court having jurisdiction); 28 U.S.C. { 1367(a)
 (supplemental jurisdiction exists over claims related to those within the
 district court's original jurisdiction).  At no time before the federal
 court dismissal did Adirondack object to the maintenance of the two actions
 or claim that dismissal of the federal action would preclude the state
 action.  In support of its preclusion claim, Adirondack stated that "we take
 the position that we did not have to move . . . . [I]f they chose to go
 forward with the federal court action first, that was their prerogative, but
 they did so at the risk that the decision in that case might preclude liti-
 gation of these issues in state court."  Similarly, Adirondack claims it was
 its prerogative not to oppose the stay in state court or to seek removal of
 the state claims to federal court.  Adirondack's position, however, ignores
 the well-established procedural rule requiring preservation of the issue:
             Where the plaintiff is simultaneously maintaining
           separate actions based upon parts of the same claim, and
           in neither action does the defendant make the objection
           that the other action is pending based on the same
           claim, judgment in one of the actions does not preclude
           the plaintiff from proceeding and obtaining judgment in
           the other action.  The failure of the defendant to
           object to the splitting of the plaintiff's claim is
           effective as an acquiescence in the splitting of the
           claim.

 Restatement (Second) of Judgments { 26 comment a (1982) (emphasis added).
 Adirondack argues that the record below is devoid of any evidence that Adi-
 rondack expressly acquiesced to Carmichael's claim-splitting.

 

 "Acquiescence," however, denotes an absence of action, a failure to register
 objection.  See The Random House Dictionary of the English Language (2d ed.
 1987) (to acquiesce is to assent tacitly, to submit or comply silently or
 without protest).
      Adirondack cites no case holding that, but for the evidence of
 defendant's express consent, the courts would have precluded a plaintiff
 from claim-splitting.  We hold that evidence of express consent is not the
 sine qua non for finding acquiescence to claim-splitting.  Adirondack's
 failure to object to Carmichael's strategy is a waiver of the defense of res
 judicata.  Notwithstanding the public policy favoring conservation of
 judicial resources by allowing a claimant only "one bite of the apple,"
 Sure-Snap Corp. v. State St. Bank and Trust Co., 948 F.2d 869, 870 (2d Cir.
 1991), litigation is not a game where surreptitious maneuvering is favored
 by the rules.  See V.R.C.P. 1 (civil rules "construed to secure the just,
 speedy, and inexpensive determination of every action").
                                     II.
       We treat together Adirondack's claims that the jury instruction on
 Carmichael's claim was erroneous and that, in any event, it was entitled to
 a directed verdict.  Adirondack argues that it could not have violated "good
 faith and fair dealing" because no contract existed between the parties as
 of Philip Carmichael's death.  We disagree that the duty of good faith and
 fair dealing expired abruptly on December 24, 1987, when Philip died.  The
 very nature of their business relationship contemplated that, after the
 contract termination, the parties owed each other duties with respect to
 winding down their affairs as long as the post-termination conduct was
 related to the contractual relationship.  See deTreville v. Outboard Marine

 

 Corp., 439 F.2d 1099, 1100 (4th Cir. 1971) ("[R]egardless of broad
 unilateral termination powers, the party who terminates a contract commits
 an actionable wrong if the manner of termination is contrary to equity and
 good conscience.").
      The definition of the "covenant of good faith and fair dealing" is
 broad.  An underlying principle implied in every contract is that each
 party promises not to do anything to undermine or destroy the other's rights
 to receive the benefits of the agreement.  Shaw v. E. I. DuPont De Nemours &
 Co., 126 Vt. 206, 209, 226 A.2d 903, 906 (1966).  The implied covenant of
 good faith and fair dealing exists to ensure that parties to a contract act
 with "faithfulness to an agreed common purpose and consistency with the
 justified expectations of the other party."  Restatement (Second) of
 Contracts { 205 comment a (1981).  The factual question in this case was
 whether Adirondack so acted toward Janet Carmichael after her husband died.
      Other than stating the underlying principles, little can be said in
 general as to what constitutes a breach of the covenant.  Although we have
 stated that a covenant of good faith is implied in every contract, an
 action for its breach is really no different from a tort action, because
 the duty of good faith is imposed by law and is not a contractual term that
 the parties are free to bargain in or out as they see fit.  Cf. Ainsworth v.
 Franklin County Cheese Corp., 156 Vt. 325, 331-32, 592 A.2d 871, 874-75
 (1991).
      We note that "good faith" is a concept that "varies . . . with the
 context" in which it is deemed an implied obligation.  Restatement (Second)
 of Contracts { 205 comment a (1981).  Contextual and fact-specific, the
 implied good-faith covenant has been the subject of many decisions that

 

 have informed the substance of this cause of action.  The implied promise by
 its nature protects against "a variety of types of conduct characterized as
 involving 'bad faith' because they violate community standards of decency,
 fairness or reasonableness."  Id.  As the Restatement points out,
           [a] complete catalogue of types of bad faith is
           impossible, but the following types are among those
           which have been recognized in judicial decisions:
           evasion of the spirit of the bargain, lack of diligence
           and slacking off, willful rendering of imperfect per-
           formance, abuse of a power to specify terms, and inter-
           ference with or failure to cooperate in the other
           party's performance.

 Id. { 205 comment d.  Further, bad faith inheres in "harassing demands for
 assurances of performance, rejection of performance for unstated reasons,
 willful failure to mitigate damages, and abuse of a power to determine com-
 pliance or to terminate the contract." Id. { 205 comment e.  Additionally,
 "[s]ubterfuges and evasions violate the obligation of good faith in
 performance even though the actor believes his conduct to be justified."
 Id. { 205 comment d.  Finally, the covenant of good faith "also extends to
 dealing which is candid but unfair, such as taking advantage of the neces-
 sitous circumstances of the other party."  Id. { 205 comment e.
      In the end, good faith is ordinarily a question of fact, one
 particularly well-suited for juries to decide.  J. Calamari & J. Perillo,
 Contracts, { 11-38 (c) (1987).  It follows that a jury instruction on point
 will feature few precise analytical elements.  Rather, such an instruction
 will ask the jurors to judge the context within which the alleged offensive
 conduct occurred.
      Adirondack argues that the jury was improperly instructed when the
 trial court explained the implied covenant of good faith and fair dealing as
 follows:

 


           While the contracts between the parties provided that
           they terminated upon the death of Philip Carmichael,
           Adirondack was under a duty to treat Plaintiffs fairly
           and in good faith.  Adirondack had a duty to advise
           Plaintiffs whether it would agree to enter into a new
           contract with them or to allow Plaintiffs a reasonable
           opportunity to find a buyer for the distributorship or
           to decide to sell their interest in  the distributorship
           to Adirondack.

 Adirondack claims for the first time on appeal that the instruction in
 effect created substantive duties that the parties had not bargained for in
 their original contract.  Not only did Adirondack waive any objection it had
 to the language of the instruction, we believe the "duties" specified in the
 instructions, given the nature of the business relationship, arose under the
 termination provision of the parties' contract by the implication of fair
 dealing and good faith.
      The context in which the jury was asked to judge involved a contract
 featuring a "key man" termination clause and a number of post-termination
 obligations demanding reasonable accommodations in winding up the parties'
 affairs and accounting for assets.  For instance, the contract provided for
 returning deposits, cooperating in locating equipment in the field, turning
 over business records, and implementing a covenant not to compete.  All of
 these activities contemplated continued interaction of the parties after the
 "key man" provision had triggered the termination of the existing con-
 tractual arrangement.  All of this post-termination activity was subject to
 good faith and fair dealing.  Although the "key man" provision may have
 spelled an end to the parties' contractually contemplated business-as-usual,
 the provision did not extinguish the context of prior dealings between the
 parties.  These dealings might have legitimately led Janet Carmichael to
 expect that Adirondack might negotiate a new agreement with her, or that it

 

 might arrange to buy her out at a fair price, or that it might allow her
 sufficient time to negotiate a sale of the business to a third party.
 Specific facts were presented at trial that evidenced the relational con-
 text within which the termination clause went into effect.  The trial
 court's instruction simply asked the jurors to decide whether good faith and
 fair dealing were observed in this context.  The evidence showed that
 Adirondack knew Carmichael had just lost her husband and thus had incurred
 the sole responsibility for running the business and supporting her family;
 that Adirondack knew that Carmichael wanted to stay in business and arguably
 did not discourage her from thinking she could; that Adirondack knew that
 the price it was offering for the distributorship had previously been
 rejected; and that Adirondack imposed unreasonably short deadlines on
 Carmichael for making an important and complex business decision.  The
 court's instruction captured the substance of the implied promise of good
 faith and fair dealing described in the Restatement.  We see no error in the
 instruction.
      It is settled law that "[g]eneral verdicts should be construed to give
 them effect, if that can reasonably be done."  Vineyard Brands, Inc. v. Oak
 Knoll Cellar, 155 Vt. 473, 481, 587 A.2d 77, 81 (1990).  On appeal, we view
 the facts in the light most favorable to Janet Carmichael, who prevailed at
 trial.  The relevant question before us, however, is whether a jury reason-
 ably could have found that Adirondack's conduct amounted to a breach of the
 implied covenant of good faith and fair dealing.  In our opinion, the trial
 record contained sufficient evidence to support the jury's verdict, provided
 that it chose to believe Janet Carmichael's testimony.  "[I]f the verdict is
 justified by 'any reasonable view of the evidence, it must stand.'" Claude

 

 G. Dern Elec. Inc. v. Bernstein, 144 Vt. 423, 426, 479 A.2d 136, 138 (1984)
 (quoting Crawford v. State Highway Bd., 130 Vt. 18, 25, 285 A.2d 760, 764
 (1971)).  It was not error to deny Adirondack's motion for a directed
 verdict.
                                    III.
      Next, Adirondack argues that Carmichael was not entitled to a jury
 instruction on punitive damages for two reasons:  (1) Adirondack had no
 notice that such damages were an issue because the applicable count of the
 complaint did not request them and, (2) the evidence did not support
 punitive damages.  To preserve the issue for review, however, "defendant
 must object to the charge 'before the jury retires to consider its verdict,
 stating distinctly the matter objected to and the grounds of the objec-
 tion.'"  Ainsworth, 156 Vt. at 332-33, 592 A.2d  at 875 (quoting V.R.C.P.
 51(b), holding that failure to object to the presence of punitive damage
 instructions results in waiver of claim of error on appeal).  Adirondack did
 not object to the giving of a punitive damage instruction on either ground.
 Even assuming the evidence was insufficient to charge the jury on punitive
 damages, the court instructed the jury on such damages without any communi-
 cation from Adirondack that the instruction was unwarranted.  Because the
 alleged error was not brought to the trial court's attention in time to
 correct it, it was waived.
                                     IV.
      Adirondack also claims that the trial court erred in not submitting an
 instruction on the affirmative defense of accord and satisfaction.  Adiron-
 dack's request for the instruction was based on a document signed by
 Carmichael in which she agreed to accept $5000 from Adirondack in exchange

 

 for the conveyance of a business telephone number, customer records, a
 mailbox, and miscellaneous business assets.
      The party asserting the accord-and-satisfaction defense must establish
 that: (1) the claim is disputed; (2) the party claiming the defense offered
 to pay less than the amount purportedly due; and (3) the other party
 accepted and retained the lesser amount offered in full settlement of the
 claim.  Eccomunity, Inc. v. Lussier, 147 Vt. 276, 278, 514 A.2d 711, 713
 (1986).  By the time the jury received its instructions, the only claim
 remaining in this case was the alleged breach of the implied covenant of
 good faith and fair dealing.  There was such scant evidence in the record to
 support a contention that Adirondack offered Carmichael $5000 to satisfy any
 claim resting on bad faith, that any finding of an accord and satisfaction
 would have been unsupportable as a matter of law.  The $5000 was
 consideration for the items listed in the document she signed, and it did
 not reach, even by implication, a satisfaction of anything else.
 Accordingly, we find no error in the trial court's refusal to instruct the
 jury on accord and satisfaction.
                                     V.
      Finally, Adirondack argues that the trial court used the wrong date to
 compute its award of prejudgment interest on the jury's award of compen-
 satory damages.  The court computed the prejudgment interest from the date
 of breach, January 18, 1988.  Adirondack does not dispute the date of
 breach.  Rather, it maintains that the court should have computed the
 interest either as of the date Carmichael first signaled a demand of
 payment, October 14, 1988, or as of the date Carmichael filed her suit,
 January 5, 1989.

 

      The court's choice of the date of the contract breach was an
 appropriate exercise of its discretion.  See V.R.C.P. 54(a); Hall v. Miller,
 143 Vt. 135, 146, 465 A.2d 222, 228 (1983) (court has discretion to award
 interest as long as damages are not so contingent as to be unsupportable);
 but cf. Gilman v. Towmotor Corp. ___ Vt. ___, ___, 621 A.2d 1260, 1263
 (1992) (prejudgment interest not available on "soft" tort damages, such as
 pain and suffering).
      Affirmed.


                                    FOR THE COURT:


                                    _____________________________
                                    Associate Justice


--------------------------------------------------------------------------------
                              Footnotes


FN1.    A question was raised below whether Janet Carmichael was the real
 party in interest.  This action arose from events related to a contract
 between Adirondack and Carmichael Homgas Plumbing & Heating, Inc.  At the
 time of these events, Janet Carmichael was not a party to the contract with
 Adirondack, but she was the sole shareholder of Carmichael Homgas.  No issue
 was raised on appeal concerning the identity of the real parties in inte-
 rest, and we do not address the issue.  For the sake of clarity, we will
 refer to the joint plaintiffs as Janet Carmichael.