Countrywide Services v. SIA Ins. Co. ( 2000 )


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  •                       United States Court of Appeals
    FOR THE EIGHTH CIRCUIT
    ___________
    No. 00-1023
    ___________
    Countrywide Services Corporation,           *
    *
    Plaintiff - Appellee,          *
    *   Appeal from the United States
    v.                                    *   District Court for the Eastern
    *   District of Missouri
    SIA Insurance Company, (A Risk              *
    Retention Group), Ltd.,                     *
    *
    Defendant - Appellant.         *
    ___________
    Submitted: September 15, 2000
    Filed: December 15, 2000
    ___________
    Before BOWMAN, BEAM, and BYE, Circuit Judges.
    ___________
    BYE, Circuit Judge.
    This is a contractual dispute between SIA Insurance Company (SIAI), and its
    former claims handling contractor, Countrywide Services Corporation (Countrywide).
    After SIAI terminated their contract, Countrywide billed SIAI for over $165,000.00 in
    allegedly unpaid invoices. When SIAI did not pay, Countrywide filed suit. The district
    court1 dismissed SIAI’s counterclaim and, on Countrywide’s motion in limine,
    excluded evidence supporting SIAI’s affirmative defenses. The jury awarded
    Countrywide $165,945.26, an amount equal to the unpaid invoices plus interest. SIAI
    appeals, claiming error in the dismissal of its counterclaim, the granting of
    Countrywide’s motion in limine, and the admission of the invoices into evidence under
    the business records exception to the hearsay rule. We affirm.
    I
    SIAI, an insurance provider for members of the scaffolding industry, contracted
    with Countrywide for claims handling services. In July 1996, SIAI and Countrywide
    renewed their contract. The contract stated in relevant part:
    THE “SERVICING COMPANY” AND THE “CLIENT” MUTUALLY
    AGREE AS FOLLOWS:
    (a)    ....
    (b)    The term of this contract is continuous from its effective date up through
    June 30, 1997. The Contract can be terminated by either the “Servicing
    Company” or the “Client” with or without cause and for any reason
    whatsoever by sixty (60) days prior written notice.
    (c)    Upon termination of this Agreement, the “Client” shall have the sole
    option of determining the manner of disposition of all claims and/or losses
    outstanding as of the date of termination; that is, in its discretion the
    “Client” may assume the claims services on such outstanding claims
    and/or losses covered by this Agreement; it may appoint another servicing
    company to perform such services; or it may authorize the “Servicing
    1
    The Honorable Catherine D. Perry, United States District Judge for the Eastern
    District of Missouri.
    -2-
    Company” to handle the runoff of such outstanding claims and/or losses
    to their conclusion pursuant to the terms and conditions in this Agreement.
    (d)    In the event of termination of this Agreement by either party, the “Client”
    shall have access to, and ultimate control of, all case files, statistical
    reports and analyses, loss runs, loss control data or other records
    maintained by the “Servicing Company” in connection with this
    Agreement. The “Servicing Company” shall be entitled to retain copies
    of all such records, and the reasonable cost of packing, mailing and/or
    shipping such records to the “Client” or its designee shall be borne by the
    “Client.”
    The SIAI account was for several years handled by two Countrywide
    employees, Robert Zinselmeier and William Ruhnke. In spring/summer of 1996, SIAI
    began the process of creating its own claims servicing company. SIAI enlisted the aid
    of Zinselmeier and Ruhnke in forming International Managers, Inc. (IMI). In
    November 1996, SIAI gave notice to Countrywide that it was terminating the contract,
    and requested that its files be transferred to IMI. On the same day, Zinselmeier and
    Ruhnke gave notice to Countrywide and went to work for IMI.
    Countrywide then did two things: it sued Zinselmeier and Ruhnke for fraud and
    tortious interference with contract, and it invoiced SIAI for various allegedly un-
    invoiced charges totaling over $165,000.00. Countrywide contends that, at the request
    of SIAI’s president, Zinselmeier and Ruhnke (although already working for IMI)
    reviewed these invoices and with minor exceptions approved them for payment.
    Nevertheless, SIAI refused to pay the amounts on the invoices, so Countrywide filed
    suit. SIAI counterclaimed, alleging that Countrywide’s suit against Zinselmeier and
    Ruhnke violated the implied duty of good faith and fair dealing that Countrywide owed
    SIAI under the contract. SIAI also employed this claim as an affirmative defense,
    stating that Countrywide’s prior breach excused SIAI’s subsequent performance.
    -3-
    On Countrywide’s Rule 12(b)(6) motion, the district court dismissed SIAI’s
    counterclaim. The district court also granted Countrywide’s motion in limine to exclude
    all evidence of the suit against Zinselmeier and Ruhnke, thus gutting SIAI’s affirmative
    defense. SIAI also moved to exclude the invoices from evidence as hearsay. The
    district court denied this motion.
    At trial, Countrywide laid the foundation for introduction of the invoices by
    calling current Countrywide employees to testify as to standard invoicing practices, as
    well as the creation of the invoices in question. SIAI objected to the introduction of
    each invoice as hearsay. Outside the presence of the jury, the court and counsel
    reviewed each invoice, and the court found them admissible under the business records
    exception.
    The jury returned a verdict for Countrywide in the amount of $165,945.26, the
    amount of the unpaid invoices plus interest. This appeal followed.
    II
    SIAI first alleges error in the dismissal of its counterclaim against Countrywide.
    We review a district court’s ruling on whether a complaint states a claim de novo. See
    Haberthur v. City of Raymore, Mo., 
    119 F.3d 720
    , 723 (8th Cir. 1997). “A complaint
    should only be dismissed under Fed. R. Civ. Pro. 12(b)(6) if, construed most favorably
    to the nonmoving party, ‘it is clear that no relief could be granted under any set of facts
    that could be proved consistent with the allegations.’” Id. (quoting Hishon v. King &
    Spalding, 
    467 U.S. 69
    , 73 (1984)). All factual allegations in SIAI’s counterclaim must
    be accepted as true. Haberthur, 119 F.3d at 723. After reviewing the contract and
    counterclaim, we affirm the district court’s order.
    SIAI’s counterclaim states that Countrywide breached the contract’s implied
    duty of good faith and fair dealing when it filed a baseless lawsuit against Ruhnke and
    -4-
    Zinselmeier, because that lawsuit impeded their ability to conduct IMI’s business of
    managing SIAI claims. SIAI alleges that Countrywide’s suit against its former
    employees was filed only as a means of frustrating SIAI’s ability to utilize a claims
    processing company other than Countrywide. SIAI points to the provision of the
    contract which allows SIAI, after giving notice of termination, to determine the
    disposition of all remaining claims. This includes the option of appointing another
    company to service the claims. SIAI alleges that one of the benefits it expected from
    this provision was to be able to “effectuate a smooth transition of the claims in the
    manner directed by SIAI.” Appellant’s Brief, 21. While Countrywide may have
    complied with the letter of the agreement by transferring SIAI’s files, SIAI argues that
    by interfering with IMI’s employees, Countrywide prevented a smooth transition and
    thus denied SIAI the benefit of the bargain. The district court granted Countrywide’s
    motion to dismiss the counterclaim for failure to plead a cause of action.
    Missouri law implies a duty of good faith and fair dealing in every contract. See
    Acetylene Gas Co. v. Oliver, 
    939 S.W.2d 404
    , 410 (Mo. App. 1996); Slone v. Purina
    Mills Inc., 
    927 S.W.2d 358
    , 368 (Mo. App. 1996). This implied duty “prevents one
    party to a contract to [sic] exercise a judgment conferred by the express terms of the
    agreement in such a manner that evades the spirit of the transaction or denies the other
    party the expected benefit of the contract.” Acetylene Gas, 939 S.W.2d at 410. Put
    another way, “[i]t is the duty of one party to a contract to cooperate with the other to
    enable performance and achievement of the expected benefits.” Slone, 927 S.W.2d at
    368.
    The terms of the contract simply do not extend as far as SIAI would like. The
    extent of the duty of good faith is determined by the express terms and expected
    benefits of the contract; here, the expected benefit was that Countrywide would transfer
    SIAI’s files to the claims handling company of SIAI’s choice. If Countrywide had
    done so in such a manner as to render the files unusable, that might have constituted a
    breach of the duty of good faith and fair dealing. However, Countrywide’s express
    -5-
    duties under the contract ended when SIAI designated a new claims handling company
    and Countrywide shipped SIAI’s records. Thus, the implied duty of good faith should
    also end at that point. SIAI can have no legitimate expectations beyond the bounds of
    these terms.
    Countrywide had no obligation under the contract to act or refrain from acting
    so as to ensure that the newly-designated claims company successfully handled SIAI’s
    account. Additionally, SIAI cannot legitimately expect Countrywide to give up its right
    to pursue legal remedies for perceived wrongs committed by its former employees,
    even if such litigation disrupts their work on behalf of SIAI.2 As one court has noted,
    the implied duty of good faith and fair dealing “does not extend so far as to undermine
    a party’s general right to act on its own interests in a way that may incidentally lessen
    the other party’s anticipated fruits from the contract.” M/A-Com Security Corp. v.
    Galesi, 
    904 F.2d 134
    , 136 (2d Cir. 1990) (citation omitted). SIAI’s claimed
    expectations go beyond the bounds of the bargain, whether express or implied, that
    SIAI and Countrywide struck when they began their relationship. The district court
    properly dismissed the counterclaim.
    2
    SIAI argues that the Restatement (Second) of Contracts provides support for its
    argument that bad faith litigation violates the duty of good faith and fair dealing: “The
    obligation of good faith and fair dealing extends to the assertion, settlement and
    litigation of contract claims and defenses. The obligation is violated by dishonest
    conduct such as conjuring up a pretended dispute. . .” Restatement (Second) of
    Contracts § 205 cmt. e. See also ABA Distributors, Inc., v. Adolph Coors Co., 542 F.
    Supp. 1272, 1285 (W.D. Mo. 1982); Riveredge Associates v. Metro. Life Ins. Co., 
    774 F. Supp. 897
    , 899-900 (D.N.J. 1991); Cohn v. Taco Bell Corp., No. 92 C 5852, 
    1995 WL 247996
    , at *7 (N.D. Ill. 1995). However, SIAI ignores the pertinent language–“of
    contract claims and defenses.” In the cases cited, the litigation referred to a dispute
    between the parties to the contract. Here, the litigation between Countrywide and its
    former employees does not involve SIAI, and does not concern the contract. The
    Restatement comment is inapposite.
    -6-
    III
    SIAI next complains that the district court erred in granting Countrywide’s
    motion in limine and preventing SIAI from introducing any evidence of Countrywide’s
    alleged prior breach of the implied duty of good faith and fair dealing. SIAI had
    intended to present this evidence as an affirmative defense to its nonpayment of the
    outstanding invoices, arguing that a prior material breach of the contract excused
    further performance by the non-breaching party. We review the district court’s ruling
    on Countrywide’s motion in limine for abuse of discretion. See White Consol. Indus.
    Co. v. McGill Mfg. Co., Inc., 
    165 F.3d 1185
    , 1192 (8th Cir. 1999).
    As discussed above, Countrywide’s actions are too attenuated from the express
    terms of the contract to be deemed a violation of the implied duty of good faith and fair
    dealing. Therefore, Countrywide’s actions do not provide SIAI with justification for
    nonpayment. The district court did not abuse its discretion in granting Countrywide’s
    motion in limine.
    IV
    Finally, SIAI complains of the district court’s admission of Countrywide’s
    invoices which, according to SIAI, are hearsay. The invoices were admitted under the
    business records exception.3 SIAI contends that the invoices, for numerous reasons,
    3
    Rule 803(6) of the Federal Rules of Evidence provides an exception to the
    hearsay rule for
    A memorandum, report, record, or data compilation, in any form, of acts, events,
    conditions, opinions, or diagnoses, made at or near the time by, or from
    information transmitted by, a person with knowledge, if kept in the course of a
    regularly conducted business activity, and if it was the regular practice of that
    business activity to make the memorandum, report, record, or data compilation,
    -7-
    do not meet the requirements of the business records exception and are therefore
    inadmissible.
    We find no abuse of discretion in the district court’s decision to admit the
    invoices. See Falcon Jet Corp. v. King Enterp., Inc. (In re King Enterp., Inc.), 
    678 F.2d 73
    , 77 (8th Cir. 1982); see also Fed. R. Evid. 807. Further opinion would have no
    precedential value. See 8th Cir. R. 47B.
    V
    For the above reasons, we affirm the decision of the district court.
    A true copy.
    Attest:
    CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
    all as shown by the testimony of the custodian or other qualified witness, unless
    the source of information or the method or circumstances of preparation indicate
    lack of trustworthiness.
    Fed. R. Evid. 803(6).
    -8-