Two weeks ago, when discussing Professor Miller’s article on differences in contract law, I remarked that there has been no appellate opinion that looked at the individualized factual issues that arise in breach of contract cases where the plaintiff has alleged a violation of the implied duty of good faith and fair dealing. Turns out I was wrong.
In fact, the Eighth Circuit, in Avritt v. Reliastar Insurance Co., recently affirmed a denial of certification in a case where the duty of good faith and fair dealing was a primary issue.
An annuity is a low-risk, low-return investment. Basically, the investor pays into a fund, the fund earns interest, and then the fund pays back out in a series of installments at a later date. In this case, the Avritt plaintiffs alleged that one of Reliastar’s annuities credited interest on recent deposits higher than it did on older deposits. They claimed that, because the higher interest rate captured the investors’ attention, paying more than one interest rate constituted a bait-and-switch. The plaintiffs asserted claims under the Washington and California consumer-protection acts, but the meat of their claims was their breach-of-contract claim. They tried to convince the trial court that Reliastar’s had breached its annuity contract because it had stated that it would only charge rates approved by its board, and there was no indication the board had approved these two separate rates. They also claimed that Reliastar had violated the duty of good faith and fair dealing.
The plaintiffs did not fare well on their breach of contract claims. The trial court (and the appellate court), expressed grave doubts about plaintiffs’ proposed interpretation of the contract. But, more damning, the Eighth Circuit held that, even if plaintiffs had alleged a viable interpretation, deciding what the contract actually said would raise too many individualized issues to justify certification.
Assuming that the Avritts’ interpretation of the contract is plausible, however, the existence of two or more reasonable interpretations opens the door for extrinsic evidence about what each party intended when it entered the contract. In addition to extrinsic evidence about Northern’s intent, Reliastar would be entitled to introduce evidence about how the contract was explained in various sales discussions and whether each purchaser’s understanding of the contract was consistent with the theory the Avritts now advance. Thus, Reliastar’s liability to the entire class for breach of contract cannot be established with common evidence.
(Emphasis added, internal citations omitted.)
Nor was the Eighth Circuit any kinder to plaintiffs’ good-faith-and-fair-dealing claim; it held that that, too, raised a number of individualized factual issues.
The duty of good faith and fair dealing, however, "arises only in connection with terms agreed to by the parties," and therefore does not create "a free-floating duty of good faith unattached to the underlying legal document." Applying these principles, the district court correctly determined that evidence of the representations made to each purchaser and the understanding that they attached to the contract would be essential to establishing liability.
(Emphasis added, internal citations omitted.) And that means that plaintiffs’ allegations about good faith and fair dealing were subject to individualized evidence.
The court also denied certification of plaintiffs’ deceptive-trade practices claims. But the important parts of this case, from a defense perspective, are the arguments it provides for defending contract class actions. As breach-of-contract class claims become more popular, it’s vital that defense counsel recognize what individualized issues are implicated. Avritt identifies a number of individualized issues that the defense should not ignore.