Benefit Management v. Allstate Life Ins ( 1993 )

May 26, 1993
[NOT FOR PUBLICATION]
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
No. 91-1837
BENEFIT MANAGEMENT OF MAINE, INC.,
Plaintiff, Appellant,
v.
ALLSTATE LIFE INSURANCE CO., ET AL.,
Defendants, Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MAINE
[Hon. W. Arthur Garrity, Jr.,* Senior U.S. District Judge]
Before
Selya, Circuit Judge,
Coffin, Senior Circuit Judge,
and Young,** District Judge.
Robert W. Harrington for appellant.
William J. Kayatta, Jr. with whom Catherine R. Connors, Pierce,
Atwood, Scribner, Allen, Smith & Lancaster, John E. Hughes, III,
Walter D. Willson, Wells, Wells, Marble & Hurst, and Ralph J. Elwart
were on brief for appellees.
* Of the District of Massachusetts, sitting by designation.
** Of the District of Massachusetts, sitting by designation.
YOUNG, District Judge. From a welter of
various claims, sounding in both contract and tort,
Appellant Benefit Management of Maine, Inc. ("Benefit"), a
retail purveyor of various insurance products, here raises
the propriety of two pre-trial rulings as well as two
aspects of the directed verdict which ultimately dashed its
hopes. After a thorough review of the entire trial record,
we affirm.
Since the four issues raised on appeal arise
out of the contractual relations between the parties, we
sketch those matters briefly at the outset to put the
following discussion in context.1
On or about September 9, 1983, Benefit
executed a Group Agency Agreement with Northbrook Life
Insurance Company ("Northbrook"). Under the Group Agency
Agreement, Benefit had an exclusive agency to sell certain
Northbrook group health insurance products in Maine, New
Hampshire, and Vermont. On or about April 13, 1984,
1 As Benefit's case began to sink on summary judgment and
ultimately foundered upon a directed verdict, we draw all
reasonable inferences in Benefit's favor throughout.
Continental Grain Co. v. Puerto Rico Maritime Shipping
Auth., 972 F.2d 426, 431 (1st Cir. 1992) (inferences drawn
against party prevailing on summary judgment); DiPalma v.
Westinghouse Electric Corp., 938 F.2d 1463, 1464 (1st Cir.
1991) (inferences drawn against party prevailing on directed
verdict).
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2
Northbrook and its parent Allstate Life Insurance Co.
("Allstate") contracted with Equitable Life Assurance
Society of the United States ("Equitable") to have Equitable
agents sell certain insurance products of Northbrook. Since
this Northbrook-Equitable agreement arguably infringed
Benefit's exclusive agency, Northbrook offered, and Benefit
accepted, an Amended Group Agency Agreement which permitted
the sales by the Equitable Agents in return for a reduction
in Benefit's franchise fee as well as added contractual
protections for Benefit.
On March 18, 1988, Northbrook, claiming
severe business losses, sent Benefit a formal notice of
withdrawal and suspension pursuant to the Amended General
Agency Agreement.2 At the same time, Northbrook offered
Benefit a limited Service Agreement ("the Northbrook Service
Agreement") which allowed Benefit certain renewal marketing
and extended claims paying authority on the Northbrook
policies then in force which were being serviced by Benefit.
2 This notice stated, in pertinent part:
Current business conditions have caused
Northbrook to revaluate its Group Agency
operations, resulting in our withdrawal from
the small-to-medium sized employer group life
and health insurance market in certain market
territories.
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Likewise, Allstate offered Benefit a service agreement ("the
Allstate Service Agreement") which granted Benefit marketing
and claims administration authority for certain future
insurance business under the Allstate name.
Benefit was reluctant to enter into these two
service agreements (collectively the "1988 Service
Agreements") since the offer was extended for but a short
time and then on a 'take it or leave it basis,' and since
the termination provisions were less favorable to Benefit
than those found in the Amended General Agency Agreement.
The alternative, however, was no further business
relationship at all with a most lucrative account.3 Since
Allstate was dangling the prospect of a longer term
relationship,4 Benefit signed.
3 During 1988, Benefit derived more than 65% of its revenues
from its Northbrook business -- a sum of over $2,000,000
from which Benefit received commissions of approximately
$665,000.
4 Allstate's agents communicated with Benefit as follows:
The term of the new Allstate contract is one year.
We anticipate that during this year major changes
will evolve in our strategy of healthcare
delivery. . . . This provision has not been
included with the idea of terminating without a
continuation option. It has been placed in the
contract to prompt renegotiation more favorable to
all parties when the cycle is complete and our
local market strategy is solidified.
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4
Less than two months later Northbrook and
Allstate gave notice that they were terminating the 1988
Service Agreements with Benefit.
This action ensued, Benefit charging, among
other claims, breach of contract and fraud. Certain of its
claims succumbed to summary judgment; the remainder
collapsed when the District Court allowed a motion for
directed verdict in favor of Northbrook and Allstate.
Benefit's appeal raises four issues.
1. Denial by the Magistrate Judge of Benefit's
Motion
to Compel
On April 23, 1991, in the course of preparing
for trial, Benefit moved to compel discovery of fourteen
documents which Allstate and Northbrook had withheld from
production on the grounds that they were protected by the
attorney-client privilege and the work-product doctrine. In
support of its motion, Benefit argued that the documents
were subject to the crime-fraud exception to the privilege.
After a hearing and an in camera review of
the documents, the Magistrate Judge denied the motion due to
Benefit's failure to make the requisite prima facie showing
of fraud. On June 10, 1991, Benefit filed a motion for
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reconsideration. No memorandum in support of the motion was
filed, in violation of Local Rule 19 of the United States
District Court for the District of Maine. Instead, Benefit
submitted an amended Rule 19 Statement of Material Facts
signed by counsel for Benefit for submission in opposition
to the pending summary judgment motion by Allstate and
Northbrook. After a hearing, the Magistrate Judge denied
the motion to reconsider. No transcript of the hearing is
available in the record.
On July 10, 1991, the first day of trial,
Benefit filed a "Motion for Reconsideration By the Presiding
Judge of a
Decision of the Magistrate Judge Entered July 2, 1991." No
supporting memorandum was filed. The District Judge
informed Benefit that he would not rule immediately on the
motion, that he would not reverse the Magistrate Judge on a
"judgment call" on a discovery issue, but that "[i]f, on the
other hand, there's a matter of law here involved, some
legal issue that you can indicate was erroneously decided
and you are clearly right, well then, I would maybe hear you
at 4 o'clock next Friday afternoon or something." Benefit
has presented no evidence that it raised the issue again
with the District Court or pressed for a ruling thereon.
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Accordingly, we rule that Benefit has waived this issue by
its failure to develop the record in the District Court.
Pursuant to 28 U.S.C. 636(b)(1)(A) (1991),
"[a] judge may designate a magistrate to hear and determine
any pretrial matter pending before the court [with
exceptions not relevant here] . . . . A judge of the court
may reconsider any pretrial matter under this subparagraph
(A) where it has been shown that the magistrate's order is
clearly erroneous or contrary to law." See also Park Motor
Mart, Inc. v. Ford Motor Co., 616 F.2d 603, 604 (1st Cir.
1980). Consideration of discovery matters by a magistrate
judge comes within the purview of the above subsection (A).
See Detection Systems, Inc. v. Pittway Corp., 96 F.R.D. 152,
154 (W.D.N.Y. 1982); Citicorp v. Interbank Card Assn, 87
F.R.D. 43, 46 (S.D.N.Y. 1980).5 "Moreover, in resolving
discovery disputes, the Magistrate is afforded broad
discretion which will be overruled only if abused."
Detection Systems, Inc., 96 F.R.D. at 154. Interpreting
5 Subsection (b)(1)(B) of 28 U.S.C. 636 permits a district
judge to designate a magistrate judge to conduct hearings
and to submit proposed findings of fact and recommendations
regarding dispositive motions and other matters specifically
excepted from subsection (b)(1)(A). A district judge shall
make a de novo review of these findings if a party objects
within the required time period. It is undisputed, however,
that subsection (b)(1)(A) applies to the instant discovery
matter.
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this subsection, the First Circuit has stated that "[u]nder
subsection (b)(1)(A) certain pretrial matters may be decided
without further reference to the district judge, but the
judge 'may reconsider . . . where it has been shown that the
magistrate's order is clearly erroneous or contrary to
law.'" ParkMotor Mart,616 F.2d at604 (omission inoriginal).
In the instant case, the District Judge was
under no obligation to review the decision of the Magistrate
Judge. The District Judge here offered Benefit an
opportunity to present something concrete showing that the
decision was clearly erroneous but the opportunity was never
exercised by Benefit. Other than concerns as to subject
matter jurisdiction, we are reluctant to consider on appeal
a matter upon which the District Judge was given no
opportunity to rule. Park Motor Mart, 616 F.2d at 605.
This is a corollary of the well settled appellate rule that
"issues adverted to [on appeal] in a perfunctory manner,
unaccompanied by some effort at developed argumentation, are
deemed waived." United States v. Zannino, 895 F.2d 1, 17
(1st Cir. 1990), cert. denied, 494 U.S. 1082 (1990). Upon
this record, we conclude Benefit waived its challenge to the
ruling of the Magistrate Judge.
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2. Exclusion of the Group Agency Agreement
Claims
Benefit filed its complaint on June 19, 1990.
On the day prior to the expiration of its right to amend,
Benefit moved to amend its complaint and the District Court
duly allowed this motion. When Northbrook and Allstate
challenged the amended complaint by a motion for summary
judgment, the briefing revealed a dispute concerning whether
Benefit had claimed, in its amended complaint, a breach of
the Amended General Agency Agreement. The District Court
ruled that no such claim had been set forth in the Amended
Complaint.
Benefit argues that mention of "contracts" in
Counts I and II of the Amended Complaint are references to
the Amended General Agency Agreement as well as to the 1988
Service Agreements. Benefit also argues that references to
"agreements" throughout the Amended Complaint are to the
Amended General Agency Agreement and the 1988 Service
Agreements. Lastly, Benefit urges that it pursued its claim
for breach of the Amended General Agency Agreement in a
number of significant pleadings and that Allstate and
Northbrook were fully prepared and would not have been
prejudiced by the trial of these claims.
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These arguments are unpersuasive. A reading
of the Amended Complaint as a whole supports the
determination of the District Court that the Amended
Complaint does not state a claim for breach of the Amended
General Agency Agreement. In its recitation of the facts in
the Amended Complaint, Benefit makes a perfunctory reference
to Northbrook's exercise of the Withdrawal and Suspension
clause of the Amended General Agency Agreement by alleging,
"Northbrook exercised its termination power under the
Agreement." This allegation does not challenge Northbrook's
actions in any way. Moreover, a fair reading of the word
"contracts" in Counts I and II is most reasonably a
reference to the 1988 Service Agreements. In fact, as the
District Court observed, Count I (alleging breach of
contract against Allstate) could not refer to the Amended
General Agency Agreement since Allstate was not a party to
that agreement and had no contractual relationship with
Benefit prior to the 1988 Allstate Service Agreement.
Finally, Benefit's argument that it has
pursued its claim for breach of the Amended General Agency
Agreement throughout the pleadings and that Allstate and
Northbrook should therefore have been on notice and prepared
to respond to these claims at trial is
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without merit. This is tantamount to a claim that the
District Court ought have allowed a further motion to amend
the complaint -- a motion Benefit never made. Rule 15(a) of
the Federal Rules of Civil Procedure permits amendment to
the pleadings "by leave of court or by written consent of
the adverse party." Rule 15(b) provides that pleadings may
be amended to conform to the evidence where issues not
raised by the pleadings are tried by the express or implied
consent of the parties. Here, Northbrook and Allstate
oppose any such amendment and the District Court was never
asked to approve a further amendment. Even if the actions
of the District Court could be interpreted as a denial of a
motion by Benefit to further amend the Amended Complaint,
such a denial was well within the discretion of the district
judge. See Riofrio Anda v. Ralston Purina Co., 959 F.2d
1149, 1154-55 (1st Cir. 1992) (affirming district court's
denial of motion to amend after deadline for amendments has
passed as consistent with purpose of Rule 15[b]). Here, the
original Complaint was filed on June 19, 1990. The District
Court ordered that all amendments to the pleadings be made
by November 30, 1990. Since Benefit did not even raise the
issue before the summary judgment hearing on or about June
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24, 1991, there was no abuse of discretion in denying any
further motion to amend.
3. Fraud
We next consider whether Northbrook's and
Allstate's conduct was fraudulent. As to this aspect of the
case, Benefit relies especially upon the testimony of Mark
Stadler, former general manager of Northbrook. Stadler
administered the 34 Northbrook General Agencies (NGA's)
including Benefit, and he and others at Northbrook used
language such as "partners" and "partnerships" as matter of
course in referring to the NGA's. In February, 1988, when
Northbrook was considering withdrawal from the Amended
General Agency Agreements, however, Stadler, in an internal
memo, opined that the NGA's "are sitting ducks!" Two days
later, in another internal memo, he sketched this approach
to further contract negotiations:
-- Terminate Northbrook Contracts - reinstate
under
Allstate
-- Remove Exclusivity Clause
-- Run out Northbrook Certificates . . .
rollover to
Allstate Paper . . .
-- Immediately begin writing Allstate . . .
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-- Limit term of agreement to one year
Benefit also presented evidence that in March, 1988, prior
to the issuance of the notice of Withdrawal and Suspension,
Allstate had been advised by McKinsey & Co., a business
consulting company, that Allstate would need to invest at
least $100,000,000 into its group life and health insurance
business in order to be competitive.
Then, four days before Northbrook issued its
formal withdrawal and suspension notice, Stadler wrote to
his superior, noting that "all of the NGA's feel that we
have Breached [sic] our agreement not to act in a matter
detrimental to them" and suggesting:
I believe we need to ask ourselves if the
tables were turned would we sign the [proposed
1988 Service] agreements as they are currently
worded. I doubt it. The NGA's have been good
partners. We should not turn our backs on them
now.
During the same period, as the negotiations
leading to the execution of the 1988 Service Agreements spun out,
Allstate and Northbrook agents continued to claim that Allstate
"will be a player in the health insurance business," despite the
fact that other Allstate representatives were, even then, meeting
with Goldman Sachs investment bankers to discuss the sale of
Allstate's group life and health business.
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From this evidence and other corroborating
circumstances, Benefit argues strenuously that it can reasonably
be inferred that Northbrook and Allstate -- in league together --
concocted the notice of withdrawal and suspension of the Amended
General Agency Agreement primarily to get out from under its
terms. Then, well knowing that they were ultimately going to
dump Benefit just as soon as it suited them, they offered in its
place the 1988 Service Agreements.
There is no dispute as to the fraud claim but
that the law of Maine applies. In Maine,
[a] defendant is liable for fraud or deceit if
he (1) makes a false representation (2) of a
material fact (3) with knowledge of its falsity
or in reckless disregard of whether it is true
or false (4) for the purpose of inducing
another to act or to refrain from acting in
reliance upon it, and (5) the plaintiff
justifiably relies upon the representation as
true and acts upon it to his damage.
Jourdain v. Dineen, 527 A.2d 1304, 1307 (Me. 1987) (quoting
Letellier v. Small, 400 A.2d 371, 376 [Me. 1979]). Moreover, to
sustain its burden on the claim of fraud, Benefit "must prove
every element of [its] claim by clear and convincing evidence; in
other words, evidence that establishes every factual element to
be highly probable." Wildes v. Ocean National Bank of Kennebunk,
498 A.2d 601, 602 (Me. 1985).
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Benefit asserts that in order to properly
exercise its rights under the Withdrawal and Suspension clause of
the Amended General Agency Agreement,6 Northbrook had not only
to cease marketing group life and health insurance through the
NGA distribution system, but also through all distribution
systems in Benefit's territory as well, including Equinet, the
Equitable distribution system. Benefit argues that the Notice of
Withdrawal and Suspension and accompanying letter dated March 18,
1988 represented that "Northbrook was ceasing and suspending
marketing group life and health insurance policies in Benefit's
territory," which notice, Benefit says, was false because
Northbrook maintained an ongoing contract with Equitable to sell
the same products in Benefit's territory.7 In support of its
6 The Withdrawal and Suspension clause of the Amended
General Agency Agreement states:
The Company [Northbrook] may withdraw all or
any part of the authority granted to the Group
Agency [Benefit] in Sections 1 and 2 hereof,
with respect to any line or lines of insurance
which the Company has decided to cease or sus-
pend writing in any or all of the location(s)
in which the Group Agency has been authorized
hereunder. The Company will give not less than
one hundred eighty (180) days advance notice to
the Group Agency prior to such cessation or
suspension.
App. I at 105.
7 Prior to trial in the District Court, Benefit's counsel at
various times had pointed to other oral statements as being
allegedly false. These other promissory estoppel and fraud
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argument, Benefit has provided us with numerous citations to
documents and testimony by Allstate and Northbrook officers to
show that the Withdrawal and Suspension was not intended to
affect the Equinet distribution system.
Where, as here, the District Court has ruled
that the evidence is insufficient to sustain a particular
proposition, our standard of review is well settled:
[W]e must find that, viewing the evidence in
the light most favorable to the non-moving
party, reasonable jurors could come to but one
conclusion. We must give [Benefit] every
benefit of every legitimate inference.
However, such inferences may not rest on
conjecture or speculation, but rather the
evidence offered must make 'the existence of
the fact to be inferred more probable than its
nonexistence.'
DiPalma v. Westinghouse Electric Corp., 938 F.2d 1463, 1464 (1st
Cir. 1991) (quoting Goldstein v. Kelleher, 728 F.2d 32, 39 [1st
Cir. 1984], cert. denied, 469 U.S. 852 [1984]) (other citations
omitted). Where a plaintiff must establish each of the elements
of its claim by clear and convincing evidence, a trial judge
necessarily must be guided by this heightened evidentiary
theories were dismissed on summary judgment. Supp. App. at
pp. 11-13. Benefit has not appealed the granting of summary
judgment on any fraud claims. In its Brief on Appeal,
Benefit relies only on the single alleged theory of fraud
discussed above. Appellant's Brief at pp. 18-19 ("The false
statement was the notice of withdrawal and suspension . . .
.").
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standard in determining, for purposes of a motion for directed
verdict, whether a jury could reasonably conclude that the
plaintiff has met its burden. Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 255 (1985).
There was no error in the District Court's
analysis of Benefit's fraud claim. While it is true, as Benefit
claims, that the Notice of Withdrawal and Suspension states not
only that Northbrook is planning to discontinue its NGA
distribution system, of which Benefit was a part, but goes on to
represent that Northbrook is withdrawing from "the small-to-
medium size employer group life and health insurance market in
certain market territories," App. I at 227, this representation
was not false. After an exhaustive trek through the entire
record, we find no indication that Benefit presented any evidence
from which it could be inferred that Northbrook or Allstate
continued to sell group policy insurance in Benefit's area after
March, 1988, when Northbrook represented that it would stop.
Much of the evidence presented by Benefit implies that Northbrook
intended to continue selling products through Equitable after
that date, but Benefit has not shown that Northbrook ever made
any such sales. Since no jury could reasonably find that this
representation was false, an essential element of the fraud claim
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is absent. The District Court thus appropriately granted a
directed verdict.8
4. Breach of Contract9
4. Breach of Contract
Benefit argues that the District Court,
misinterpreting and misapplying Illinois law, improperly directed
a verdict for Allstate and Northbrook on its claims for breach of
the two 1988 Service Agreements and breach of the duty of good
faith and fair dealing.
Since we here review a diversity case brought
in the United States District Court for the District of Maine, we
must determine the applicable law as would a court of the state
of Maine. Klaxon v. Stentor Electric Mfg. Co., 313 U.S. 487,
8 In his opinion, the District Judge stated that Allstate
and Northbrook could not have marketed group life and health
insurance in Maine after January 1, 1988, because they had
sold this portion of the business to Metropolitan. Even if
there were evidence to the contrary, as Benefit says, i.e.,
that the Equitable business was exempted from the transfer
to Metropolitan, Benefit still has shown no actual sales by
Equitable, only the potential for sales. Any error by the
trial judge regarding this matter is therefore harmless.
9 Benefit also argues on this point that the District Court
improperly characterized the testimony of Benefit's damages
expert as contrary to the evidence. We need not reach this
issue since it was not a ground on which the District Court
based its directed verdict, viz., "[The weakness of the
expert testimony] is not an independent ground of the
Court's granting the motion for directed verdict,
nevertheless it's a factor. It's sort of a background con-
sideration which the Court has not felt it should ignore. .
. ."
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496-97 (1941). Each of the 1988 Service Agreements contained
choice of law provisions stating that Illinois law would govern
each contract. Since a Maine court, under established
principles, would honor contractual choice of law and apply the
law of the state of Illinois in this case, we shall do the same,
as did the trial court. Lincoln Pulp & Paper Co., Inc. v. Dravo
Corp., 436 F. Supp. 262, 268 (D. Me. 1977).
Benefit's Amended Complaint asserted separate
claims for breach of contract (Counts I and II) and breach of the
duty of good faith and fair dealing (Counts V and VI). The
District Court consolidated the breach of fair dealing counts
with the breach of contract counts, ruling that Illinois did not
recognize an independent cause of action for breach of the duty
of good faith.
The District Court then directed a verdict for
Northbrook and Allstate on the contract claims. The court
reasoned (1) that where independent business people knowingly
enter into a contract, they must bear responsibility for its
terms, (2) that the Northbrook Service Agreement provided for
termination upon 90 days notice and the Allstate Service
Agreement likewise provided for termination, albeit on 180 days
notice, (3) that the requisite notices had been given, and (4)
that, even in the context of a franchise agreement, the covenant
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of good faith and fair dealing does not supervene express
contractual terms. Benefit here challenges the decision of the
District Court to fold the issue of good faith and fair dealing
into the two contract counts (thus dismissing those counts that
asserted that issue as an independent cause of action) and its
ultimate legal conclusion that, notwithstanding the implied
covenant of good faith, the express terms of the 1988 Service
Agreements governed and were fulfilled.
Benefit relies on P&W Supply Co., Inc. v. E.I.
DuPont de Nemours & Co., Inc., 747 F. Supp. 1262, 1268 (N.D. Ill.
1990) for the proposition that Illinois recognizes a separate
cause of action for bad faith termination of a franchisee in
violation of state law. P&W Supply Co., however, held only that
an independent cause of action exists pursuant to the Illinois
Franchise Disclosure Act ("Franchise Act"), Ill. Rev. Stat. ch.
815, 705/1 et seq. (1993) (formerly ch. 121 , 1701 et seq.).
See 747 F. Supp. at 1267-68. The instant action was not brought
under the Franchise Act, but under common law. Indeed, Benefit
could not have brought this action under the Franchise Act
because that statute applies only to Illinois dealerships.
Highway Equipment Co. v. Caterpillar Inc., 908 F.2d 60, 64 (6th
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Cir. 1990) (Franchise Act enacted to benefit Illinois residents
only).10
We agree with the District Court that the
Franchise Act is inapplicable and, further, that no independent
cause of action exists under the common law of Illinois. "Under
Illinois law, a covenant of good faith and fair dealing is
implied in every contract." Capital Options Investments v.
10 Allstate and Northbrook also assert that their re-
lationships with Benefit did not satisfy the requirements
for a franchise agreement under the Franchise Act. The
Franchise Act defines a franchise as a contract or agreement
by which --
(a) a franchisee is granted the right to engage in
the business of offering, selling, or distributing
goods or services, under a marketing plan or
system prescribed or suggested in substantial part
by a franchisor; and (b) the operation of the
franchisee's business pursuant to such plan
or system is substantially associated with the
franchisor's trademark, service mark, trade name,
logotype, advertising, or its other commercial
symbol designating the franchisor its affiliate;
and (c) the person granted the right to engage in
such business is required to pay, directly or in-
directly, a franchise fee of $500 or more.
Ill.Rev.Stat. ch. 815, 705/3 (1993) (formerly ch. 121 ,
1703(1)).
We need not decide whether the District Court
correctly determined that a reasonable jury could have found that
the 1988 Service Agreements between Benefit and Allstate and
Northbrook respectively were franchise agreements. Even if these
agreements were franchise agreements under the Franchise Act, as
they pertain to businesses outside Illinois they are entitled to
no more protection than other agreements. Highway Equipment Co,
908 F.2d at 64 (extraterritorial franchise agreements are not
protected by the Franchise Act).
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Goldberg Bros., 958 F.2d 186, 189 (7th Cir. 1992); P&W Supply
Co., 747 F. Supp. at 1267. Breach of the implied covenant,
however, does not create an independent cause of action. Beraha
v. Baxter Health Care Corp., 956 F.2d 1436, 1443 (7th Cir. 1992);
Williams v. Jader Fuel Company, Inc., 944 F.2d 1388, 1394 (7th
Cir. 1991). Claims for breach of the implied covenant of good
faith and fair dealing are, therefore, considered as part of a
claim for breach of contract. See e.g., LaScola v. U.S. Sprint
Communications, 946 F.2d 559, 565 (7th Cir. 1991) (no independent
action sounding in contract for breach of an implied covenant of
good faith and fair dealing in the employment-at-will setting);
Harrison v. Sears, Roebuck & Co., 546 N.E.2d 248, 256 (Ill. App.
Ct. 1989) (same); Gordon v. Matthew Bender & Co., Inc., 562 F.
Supp. 1286, 1290 (N.D. Ill. 1983) (same); Foster Enters., Inc. v.
Germania Fed. Sav. and Loan Ass'n, 421 N.E.2d 1375, 1380-81 (Ill.
App. Ct. 1981) (discretion authorized under a contract but exer-
cised in bad faith results in an actionable breach of contract).
But see BA Mortgage and Int'l Realty Co. v. American Nat'l Bank
and Trust Co. of Chicago, 706 F. Supp. 1364, 1373 (N.D. Ill.
1989) (limiting the holding of Gordon v. Matthew Bender to
employment at will situations).
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Unlike the result which obtains under the
Franchise Act,11 we conclude that, absent special
circumstances, the duty of good faith implied at common law in
Illinois may not supplant the express terms of a contract. In
Illinois, the term "good faith" refers to "an implied undertaking
not to take opportunistic advantage in a way that could not have
been contemplated at the time of drafting, and which therefore
was not resolved explicitly by the parties." Kham & Nate's Shoes
No. 2, Inc. v. First Bank of Whiting, 908 F.2d 1351, 1357 (7th
Cir. 1990); see also Capital Options Investments, 988 F.2d at
189. Thus, while principles of good faith -- such as a
requirement of good cause for termination -- may be imposed to
fill the gap where a contract is silent, see e.g., Dayan v.
McDonald's Corp., 466 N.E.2d 958, 973 (Ill. App. Ct. 1984)
(stating in dicta that where a franchise contract is wholly
silent on the issue of termination, "the implied covenant of good
faith restricts franchisor discretion in terminating a franchise
agreement to those cases where good cause exists"), "no
obligation can be implied which would be inconsistent with the
explicit terms of the contract." Williams, 944 F.2d at 1394.
11 Under the Franchise Act the implied covenant of good
faith may override the express terms of a contract. P&W
Supply Co, 747 F. Supp. at 1268 (franchisor may not
terminate absent good cause even though contract provided
for termination on 30 days notice with or without cause).
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"Firms that have negotiated contracts are entitled to enforce
them to the letter, even to the great discomfort of their trading
partners, without being mulcted for lack of 'good faith.'" Kham
& Nate's Shoes, 908 F.2d at 1357; Highway Equipment Co., 908 F.2d
at 64, n.3 (at common law "no case in ... Illinois ... has
applied a good cause obligation" to contravene an express
termination at will provision); Hentze v. Unverfehrt, 604 N.E.2d
536, 539 (Ill. App. Ct. 1992). Thus, compliance with the
explicit terms of a termination agreement is, absent actual "bad
faith" or "opportunistic advantage-taking," Hentze, 604 N.E.2d at
539 (citing Kham & Nate's Shoes, 908 F.2d at 1357), good faith
conduct notwithstanding the economic consequences imposed upon
the terminated party.
The present case, though factually
distinguishable from both express and silent termination clause
cases, falls comfortably within the ambit of the former.12
12 It must be candidly recognized, however, that in each of
the cases cited by Allstate and Northbrook for the
proposition that where a contract expressly provides for
termination without cause there is no room for implying a
requirement of good cause, the termination clause was some-
what more explicit than that in the present case. See
Highway Equipment Co., 908 F.2d at 64 (right to terminate
"without cause"); Valley Liquors, Inc. v. Renfield
Importers, Ltd., 822 F.2d 656, 669 (7th Cir. 1987), cert.
denied, 484 U.S. 977 (1987) (right to terminate "at any time
and for any reason"); see also Corenswet, Inc. v. Amana
Refrigeration, Inc., 594 F.2d 129, 132 (5th Cir. 1979),
cert. denied, 444 U.S. 938 (1979) (right to terminate "at
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Here, each of the 1988 Service Agreements contains an express
termination-upon-notice provision which may be exercised "without
regard to the terms above" -- terms which detailed the grounds
for termination for cause.13 We agree with the District Court
and rule that the contract language adopted by the parties here
authorized termination at will upon notice and that this language
may not, under the common law of Illinois, be vitiated absent bad
faith.
Under Illinois law, "bad faith" has been
described as "opportunistic advantage-taking or lack of
cooperation depriving the other contracting party of his
reasonable expectations," Hentze, 604 N.E.2d at 539 (citing Kham
& Nates Shoes, 908 F.2d at 1357), or as conduct "violat[ing]
community standards of decency, fairness or reasonableness," Zick
any time for any reason").
13 The termination provisions provided that: "Termination
of the Agreement at the option of either party without
regard to the terms set out above may be effected by such
party providing the other with one hundred and eighty days
(180) written notice" [ninety days in the case of the
Northbrook Service Agreement]. The terms "set out above" in
the 1988 Service Agreements provided a number of reasons why
Allstate and Northbrook could terminate for cause (e.g.
bankruptcy of the Administrator's [Benefit's] business,
gross negligence, fraud or embezzlement by the
Administrator, etc.). Indeed, Benefit refers to the
termination provision in the 1988 Service Agreements as
"much more favorable to Allstate" than were the cognate
provisions of the Amended General Agency Agreement.
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v. Verson Allsteel Press Co., 623 F. Supp. 927, 929 (N.D. Ill.
1985), or "generally implying or involving actual or constructive
fraud, or a design to mislead or deceive another, or a neglect or
refusal to fulfill some duty or some contractual obligation, not
prompted by an honest mistake as to one's rights or duties but by
some interested or sinister motive." Valley Liquors, 822 F.2d at
670 (quoting Black's Law Dictionary 127 [5th Ed. 1979]).
Here, Benefit itself adduced the evidence that
in 1988 Allstate needed an infusion of $100,000,000 in order to
remain competitive in this market. This evidence, coupled with
the fact that Northbrook and Allstate treated all the NGA's as
shabbily as they had Benefit conclusively demonstrates the
absence of malice toward Benefit. True, Allstate and Northbrook
did not cover themselves with glory in their retreat from the
market that sustained Benefit. The "good hands" people are here
revealed as much less than the cooperative partners they held
themselves out to be. Instead, this record makes abundantly
clear that both Allstate and Northbrook single-mindedly pursued
their economic advantage with little regard for the consequences
to Benefit and the other NGA's and maneuvered in such a way as to
squeeze the last bit of service out of their soon to be dumped
"partners."
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Their conduct, however, driven as it was by
economic necessity, does not rise to the level of bad faith under
the law of Illinois. Although this Court is aware of no Illinois
law directly on point, it has generally been held that when a
product line is withdrawn from the market, good cause exists for
terminating the contract. See Medina & Medina v. Country Pride
Foods, Ltd., 858 F.2d 817, 824 (1st Cir. 1988) (following answer
of the Supreme Court of Puerto Rico to certified question from
the First Circuit, good faith withdrawal from the market does not
violate Puerto Rico franchise act); Lee Beverage Co. v. I.S.C.
Wines of California, 623 F. Supp. 867, 868 (E.D. Wis. 1985) (good
cause for termination where dealer withdrew product line from
market) (Wisconsin state law); St. Joseph Equipment v. Massey-
Ferguson, Inc., 546 F. Supp. 1245 (W.D. Wisc. 1982) (same)
(Wisconsin state law).14 Compare Hentze, 604 F.2d at 539-540
(termination of dealership contract amounted to "bad faith"
14 In Wright-Moore Corp. v. Ricoh Corp., 908 F.2d 128, 138
n.4 (7th Cir. 1990), the Seventh Circuit reserved the market
withdrawal issue for another case but stated in dicta that
other courts have considered market withdrawals to
constitute good cause since they carry little chance of
unfair dealing. The Seventh Circuit rejected, however, the
broad holding in American Mart Corp. v. Joseph E. Seagram &
Sons, Inc., 824 F.2d 733, 734 (9th Cir. 1987), relied on by
Allstate, that business considerations of a franchisor could
constitute good cause for termination. Id. at 138.
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because of tactics aimed at running terminated dealership out of
business).
Since here there was good cause to withdraw
this insurance product line from the market, the District Court
was correct in ruling that Benefit presented insufficient
evidence for a jury to find that Allstate or Northbrook
terminated the 1988 Service Agreements in bad faith.
CONCLUSION
The District Court having dealt properly with
the discovery matter addressed by the Magistrate Judge, having
appropriately declined to permit further amendment of the
complaint, and having justifiably directed a verdict as to both
the contract and fraud counts, its decision is, in all respects,
Affirmed.
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