New Vision Programs, Inc. v. D.s.h.s., State Of Wa ( 2016 )

Filed
Washington State
Court of Appeals
Division Two
March 29, 2016
IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
DIVISION II
NEW VISION PROGRAMS INC., a No. 46914-6-II
Washington corporation,
Appellant,
v.
STATE OF WASHINGTON, DEPARTMENT
OF SOCIAL AND HEALTH SERVICES; and
RANDY ROBERTS, individually, UNPUBLISHED OPINION
Respondent.
WORSWICK, J. — New Vision Programs, Inc. owned and operated residential homes for
foster children under a contract with the Department of Social and Health Services (DSHS).
After becoming concerned about the children’s welfare, DSHS removed many children from
New Vision’s homes, and in June 2013, DSHS chose not to renew the contract. New Vision
sued DSHS under multiple theories and the superior court granted DSHS’s motions for summary
judgment dismissal.
New Vision now appeals the summary judgment dismissal of its breach of contract claim
against DSHS, arguing that the superior court erred because genuine issues of material fact exist
regarding whether DSHS violated the implied duty of good faith and fair dealing. We disagree
that the contract implied any of the duties of good faith that New Vision argues, and we affirm
the superior court.
No. 46914-6-II
FACTS
DSHS regulates the foster care of children in Washington. New Vision, a Washington
corporation, owns and operates residential homes that provide behavior rehabilitation services
(BRS) for foster children. BRS “is a temporary intensive wraparound support and treatment
program for youth with extreme, high level service needs . . . used to safely stabilize youth and
safely move them to permanency or less intensive services.” Clerk’s Papers (CP) at 512.
In 2010, New Vision and DSHS entered into a client service contract, which the parties
renewed annually in 2011 and 2012. The contract at issue here started on July 1, 2012 and ended
on June 30, 2013. It governed DSHS’s placement of children into New Vision’s homes, and it
required DSHS to pay New Vision “only for authorized services provided in accordance with
this Contract.” CP at 533. The contract allowed DSHS to “request services from the Contractor
on an as-needed basis,” but the contract did not “obligate [DSHS] to authorize services from the
Contractor.” CP at 533. The contract provided that New Vision would provide services such as
housing, food, and BRS to children who were placed into a New Vision home.
The contract stated that the length of stay of a child at New Vision’s facilities “will be
based on the individual needs of the youth and may not exceed the term of 12 months, unless
approved in writing by the CA [DSHS (Children’s Administration)] Regional Administrator or
designee.” CP at 543. To determine the planned length of a child’s stay at New Vision’s homes,
the contract provided that the “Contractor and CA shall mutually agree and establish a targeted
exit date, for a child to transition from BRS. . . . This mutually agreed upon exit date should be
determined at the child’s initial case staffing meeting, held within 30 days of entry.” CP at 543.
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The contract provided for suspending New Vision’s performance under certain
circumstances:
DSHS may, without prior notice, suspend the Contractor’s performance of the
Contract if the Contractor . . . is investigated by DSHS or a local, county, state, or
federal agency regarding any matter that, if ultimately established, could either:
a. Result in a conviction for violating a local, state, or federal law, or
b. In the sole judgment of DSHS, adversely affect the delivery of services under
this Contract or the health, safety or welfare of DSHS clients.
CP at 535.
Finally, the contract included termination provisions. It provided that either party could
terminate the contract with 30 days’ notice; specifically, DSHS could terminate “in whole or in
part when it is in the best interest of DSHS by giving the Contractor at least thirty (30) calendar
days’ written notice.” CP at 525. The contract also permitted DSHS to immediately terminate
the contract “for default” if DSHS had a reasonable basis to believe New Vision failed to protect
the health and safety of the children, breached any contract term, or violated any law or
regulation.1 CP at 525-26.
In late 2012, DSHS became concerned about some children’s welfare in New Vision’s
homes. Between November 2012 and March 2013, DSHS entered into several compliance
agreements with New Vision in an attempt to rectify conditions in New Vision homes. DSHS
also began a comprehensive investigation of New Vision’s homes. After this investigation,
DSHS decided between April and June 2013 to remove many of the children from New Vision’s
1
If it was later determined that New Vision was not in default, the contract provided that
“termination shall be considered a termination for convenience.” CP at 526.
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No. 46914-6-II
homes and to stop placing children there due to possible licensing violations and allegations of
child neglect. In June 2013, the contract expired and DSHS chose not to renew it.
New Vision sued DSHS for a declaratory judgment and recovery of damages for breach
of contract and defamation. Regarding breach of contract, New Vision argued that DSHS
violated an implied duty of good faith. DSHS twice moved for a summary judgment of
dismissal. The superior court granted DSHS’s motions for summary judgment, dismissing each
claim. New Vision appeals only the dismissal of its breach of contract claim.
ANALYSIS
I. SUMMARY JUDGMENT PRINCIPLES FOR CONTRACT INTERPRETATION
We review a superior court’s summary judgment order de novo, performing the same
inquiry as the superior court. Vernon v. Aacres Allvest, LLC, 183 Wn. App. 422, 427, 333 P.3d
534 (2014), review denied, 182 Wn.2d 1006 (2015). We view all facts and reasonable inferences
drawn from those facts in the light most favorable to the party that did not move for summary
judgment. Vernon, 183 Wn. App. at 427. If there are no genuine issues of material fact, and the
moving party is entitled to judgment as a matter of law, we affirm the superior court’s summary
judgment order. Lakey v. Puget Sound Energy, Inc., 176 Wn.2d 909, 922, 296 P.3d 860 (2013).
Summary judgment on the interpretation of a contract is “proper where ‘the parties’
written contract, viewed in the light of the parties’ other objective manifestations, has only one
reasonable meaning.’” Spradlin Rock Prods., Inc. v. Pub. Util. Dist. No. 1 of Grays Harbor
County, 164 Wn. App. 641, 655, 266 P.3d 229 (2011) (quoting Hall v. Custom Craft Fixtures,
Inc., 87 Wn. App. 1, 9, 937 P.2d 1143 (1997)). Where there are no disputed material facts and
no extrinsic evidence presented on the issue, we decide the meaning of a contract as a matter of
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No. 46914-6-II
law. Snohomish County Pub. Transp. Benefit Area Corp. v. FirstGroup Am., Inc., 173 Wn.2d
829, 834, 271 P.3d 850 (2012). We review the interpretation of an unambiguous contract de
novo as a question of law. Stranberg v. Lasz, 115 Wn. App. 396, 402, 63 P.3d 809 (2003). We
view contracts as a whole, interpreting particular language in the context of the entire contract.
Viking Bank v. Firgrove Commons 3, LLC, 183 Wn. App. 706, 713, 334 P.3d 116 (2014).
II. DUTY OF GOOD FAITH
New Vision argues that DSHS owed it a duty of good faith and fair dealing under five
specific terms of the contract. We disagree.
A. Good Faith Principles
An implied duty of good faith and fair dealing obligates the parties to a contract to
cooperate with each other so that each may obtain the contract’s full benefit. Rekhter v. Dep’t of
Soc. & Health Servs., 180 Wn.2d 102, 112, 323 P.3d 1036 (2014). However, the implied duty of
good faith and fair dealing does not impose a free-floating obligation of good faith on the parties.
Rekhter, 180 Wn.2d at 113. Instead, it “arises when one party has discretionary authority to
determine a future contract term,” which term the party is obligated to perform. Rekhter, 180
Wn.2d at 112-13.
This duty does not add to or contradict express contract terms. Rekhter, 180 Wn.2d at
113. And as explored below, if a contract gives a party unconditional authority to determine a
term, no duty of good faith and fair dealing attaches to that term. Rekhter, 180 Wn.2d at 119-20;
Johnson v. Yousoofian, 84 Wn. App. 755, 762-63, 930 P.2d 921 (1996).
Rekhter is illustrative. In Rekhter, DSHS entered into contracts providing public
assistance for in-home care for individuals with disabilities. 180 Wn.2d at 108. The contracts
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No. 46914-6-II
provided that DSHS would pay in-home care contractors for services included in the client’s
service plan. 180 Wn.2d at 108. Because the contracts were drafted before each client had a
service plan, “key terms such as tasks to be performed and authorized hours are left undefined
until long after the contract is executed.” 180 Wn.2d at 108. A jury found that DSHS violated
the implied duty of good faith and fair dealing by reducing the hours it would authorize for live-
in providers. 180 Wn.2d at 111. Our Supreme Court affirmed this jury verdict because
DSHS has a specific contractual obligation to determine and pay providers for
hours authorized in the service plans. . . . [A]t the time that DSHS and an individual
provider executed a provider contract, neither DSHS nor the provider knew what
services would be needed by the clients or how much would be paid to the
providers. These provisions give DSHS the discretion to set a future contract term:
the quantity of hours and the types of services for which providers will be
compensated.
180 Wn.2d at 113-14 (emphasis added). Thus, because DSHS had discretion to set a future
contract term which it had a specific obligation to perform, the implied duty of good faith and
fair dealing applied to that term.
By contrast, no implied duty of good faith and fair dealing exists where a party has
unilateral authority to do or not do something under a contract. For example, in Johnson,
Division One of this court considered whether the implied duty of good faith and fair dealing
applied to a commercial lease’s assignment clause. 84 Wn. App. at 756-57, 759. The clause
prevented the tenant from assigning the lease without the landlord’s written consent, but the
landlord was not required to give consent. 84 Wn. App. at 757. Division One of this court held
that the duty of good faith applies only to the performance of specific contract obligations. 84
Wn. App. at 762. Therefore, because the commercial lease did not obligate the landlord to
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No. 46914-6-II
consent to an assignment, instead giving him the absolute privilege to refuse consent, there was
no implied duty of good faith and fair dealing. 84 Wn. App. at 762-63.
Likewise, contract provisions permitting a party to cancel an agreement at will do not
imply a duty of good faith. In Mayer v. Pierce County Medical Bureau, Inc., 80 Wn. App. 416,
421-22, 909 P.2d 1323 (1995), we held that there was no implied duty of good faith in canceling
where the contract provided that either party could cancel with 30 days’ notice. See also Myers
v. Dep’t of Soc. & Health Servs., 152 Wn. App. 823, 828-30, 218 P.3d 241 (2009) (finding no
duty of good faith when there is a termination for convenience clause).
B. New Vision’s Contract with DSHS
This case turns on whether a duty of good faith and fair dealing is implied under several
terms of DSHS’s contract with New Vision. Whether a contract term includes an implied duty
of good faith and fair dealing depends on whether DSHS had unconditional authority to set
contract terms. Rekhter, 180 Wn.2d at 114. New Vision argues that an implied duty of good
faith applies to contract terms concerning the placement of children, stopping placement of
children and removing them, the “Corrective Action Plan,” setting the end date for a child’s
placement, and termination of the contract. Br. of Appellant at 15. Because there was no duty of
good faith and fair dealing implied in these clauses, New Vision’s argument fails.
1. Placement of Children
New Vision argues that the contract provided DSHS with the discretionary authority to
place children in New Vision’s homes; accordingly, it argues that the duty of good faith and fair
dealing applied to the placement of children. We disagree.
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No. 46914-6-II
The contract stated that DSHS may authorize services “as[ ]needed.” CP at 533. The
contract stated: “[DSHS] may request services from the Contractor on an as-needed basis. This
Contract does not obligate [DSHS] to authorize services from the Contractor.” CP at 533. This
contract clearly provided DSHS with the unconditional authority to place or not place children in
New Vision’s homes to receive New Vision’s services. There was no specific obligation in the
contract requiring DSHS to place children into New Vision homes. Because DSHS had
unilateral authority to place children in New Vision’s homes under the contract, no implied duty
of good faith and fair dealing attached to this contract term. Johnson, 84 Wn. App. at 762.
2. Stop Placement Order and Removal of Children
New Vision next argues that there was an implied duty of good faith and fair dealing in
the contract’s term allowing DSHS to stop the placement of children and to remove children
from the homes. We disagree.
In support of this argument, New Vision points to the following contract term:
DSHS may, without prior notice, suspend the Contractor’s performance of the
Contract if the Contractor . . . is investigated by DSHS or a local, county, state, or
federal agency regarding any matter that, if ultimately established, could either:
a. Result in a conviction for violating a local, state, or federal law, or
b. In the sole judgment of DSHS, adversely affect the delivery of services under
this Contract or the health, safety or welfare of DSHS clients.
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No. 46914-6-II
CP at 535 (emphasis added). New Vision argues that this term gave DSHS discretion “to define
what circumstances give rise to the issuance of a stop placement order.”2 Br. of Appellant at 14.
This is incorrect.
To the extent New Vision argues that DSHS did not have unconditional authority to stop
the placement of new children in its homes, we reject that argument above. And to the extent
New Vision argues that DSHS did not have unconditional authority to remove children from
New Vision homes, this argument fails as well. The contract term New Vision now cites did not
reduce DSHS’s unconditional authority to remove existing children. Instead, this contract term
gave DSHS unconditional authority to suspend the contract and to determine what would
adversely affect the delivery of services. Accordingly, no implied duty of good faith and fair
dealing attached. Johnson, 84 Wn. App. at 762.
3. Corrective Action Plan
New Vision next argues that DSHS owed it an implied duty of good faith regarding the
issuance and administration of a Corrective Action Plan. We disagree.
The contract read in relevant part: “In the event that DSHS identifies deficiencies in
Contractor’s performance under this Contract, DSHS may, at its option, establish a Corrective
Action Plan.” CP at 535 (emphasis added). This term did not obligate DSHS to identify
deficiencies, nor did it obligate DSHS to establish a Corrective Action Plan. Accordingly, no
duty of good faith attached to DSHS’s issuance of a Corrective Action Plan. Rekhter, 180
Wn.2d at 113; Johnson, 84 Wn. App. at 762.
2
There is no “stop placement order” in our record. Thus, we do not know the precise procedure
relevant to a “stop placement.” It appears that a “stop placement” involves at least the decision
not to place additional children, and it may also initiate the removal of children already placed.
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The contract continued: “When presented with a Corrective Action Plan, Contractor
agrees to undertake the actions specified in the plan within the timeframes given to correct the
deficiencies. Contractor’s failure to do so shall be grounds for termination of this Contract.” CP
at 535. This gave New Vision an obligation under the contract, which obligation was triggered
when DSHS presents it with a Corrective Action Plan. But it did not obligate DSHS to do
anything. Nor did this term obligate DSHS to terminate the contract if New Vision failed to
undertake the Corrective Action Plan’s actions. It merely provided that the failure to do so was
grounds for termination; it did not obligate DSHS to take any action. Accordingly, nothing in
this term implied a duty of good faith on DSHS. Johnson, 84 Wn. App. at 762.
4. Determining End Date of Child’s Stay
New Vision next argues that the contract implied a duty of good faith in removing
children from New Vision’s homes because it required DSHS to agree with New Vision in
setting an end date for the child’s stay. We disagree.
The contract provided in relevant part that the parties would work together to determine
the length of a child’s stay in New Vision’s residences. Specifically, it read:
Length of stay will be based on the individual needs of the youth and may not
exceed the term of 12 months, unless approved in writing by the CA Regional
Administrator . . . . The Contractor and CA shall mutually agree and establish a
targeted exit date . . . . This mutually agreed upon exit date should be determined
at the child’s initial case staffing meeting, held within 30 days of entry.
CP at 543 (emphasis added). This term obligated DSHS to do something: it was required to
work with the contractor to establish a targeted exit date at the initial case staffing meeting.
Therefore, as in Rekhter, this term obligated DSHS to use its discretion to mutually set an exit
date. See 180 Wn.2d at 113-14. Thus, there was an implied duty of good faith and fair dealing
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No. 46914-6-II
attached to the parties’ setting of a planned exit date for a child. See Br. of Resp’t at 26
(agreeing that this term included an implied duty respecting the setting of an exit date).
But New Vision does not argue that DSHS violated the implied duty of good faith and
fair dealing when negotiating any child’s exit date. Instead, it argues that this term obligated
DSHS to use good faith when deciding to remove a child, even in an emergency. But we
interpret contracts as a whole, viewing any particular language in the entire contract’s context.
Viking Bank, 183 Wn. App. at 713. Therefore, we do not view this term of the contract in
isolation.
When we view the contract as a whole, it is clear that this term governed only the initial
plan of how long a child should stay at New Vision’s facilities. By contrast, when DSHS
determined that reasons existed to terminate the contractor’s performance, it had sole discretion
to do so without notice under the stop placement provision. Thus, the contract contemplated that
DSHS retained the exclusive authority to stop placement when it determined that reasons existed
to do so. See WAC XXX-XX-XXXX (allowing DSHS to remove a child immediately without notice
to the foster care provider in “emergency situations”).
In summary, while the implied duty of good faith applied to DSHS’s obligation to
mutually agree upon a target exit date when a child entered the placement, this implied duty did
not attach to the contract term allowing DSHS, at its sole discretion, to remove children from
New Vision homes. Accordingly, this claim fails.
5. Termination of Contract
Finally, New Vision argues that there was an implied duty of good faith in terminating
the contract. We disagree.
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New Vision argues that DSHS effectively terminated the contract when it removed the
children from its homes during the term of the contract. But the language of the contract made
clear that the contract expired on June 30, 2013. The removal of children before that date did not
terminate the contract.3
In conclusion, none of these specific contract terms obligated DSHS to act. New Vision
misstates the law by arguing that DSHS had an implied duty of good faith because it had
discretion to determine when it would act. Instead, it had unconditional authority to determine
whether to act at all. It was under no obligation to place, retain, or replace children, or to issue a
Corrective Action Plan or to terminate the contract. Thus, no duty of good faith attached to these
terms. Put another way, the parties bargained for an agreement wherein DSHS maintained
considerable authority to take unilateral action in certain circumstances.4 Because the parties had
no agreement obligating DSHS to do the actions New Vision complains of, as a matter of law no
duty of good faith and fair dealing was implied. See SAK & Associates, Inc. v. Ferguson Const.,
Inc., 189 Wn. App. 405, 416, 357 P.3d 671 (2015); Johnson, 84 Wn. App. at 762. Therefore, we
affirm the summary judgment.5
3
Even if DSHS terminated the contract before its expiration, no implied duty of good faith
attached to the termination provisions in the contract. This is because provisions permitting a
party to cancel an agreement at will do not imply a duty of good faith and the contract here
allowed DSHS to terminate at will. Mayer, 80 Wn. App. 422.
4
Our interpretation of the contract is consistent with statutes and rules obligating DSHS to
protect the health and safety of the children in its custody. See RCW 74.13.031(6), (7). Our
reading of the contract, and these statutes, reflect the policy goal that DSHS should have the
ability to immediately react to potentially harmful situations.
5
New Vision argues that if no implied duty of good faith applied, DSHS would have “carte
blanche” to make decisions about children’s placement based on improper factors such as race.
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A majority of the panel having determined that this opinion will not be printed in the
Washington Appellate Reports, but will be filed for public record in accordance with RCW
2.06.040, it is so ordered.
Worswick, J.
We concur:
Johanson, C.J.
Lee, J.
Discrimination based on race would violate the law and the constitution, but that consideration
has nothing to do with whether this contract imposed any implied duty of good faith.
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