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Twist v. Home Depot U.S.A., Inc.

A-4137-05T1 (N.J. Super. App. Div. 2007) (Unpublished)

CONTACTS; GOOD FAITH — Although a party to an agreement may retain discretion to terminate the agreement, in exercising such discretion, that party must not unilaterally use that authority in a way that intentionally subjects the other party to a risk beyond the normal business risks that the parties could have contemplated at the time of contract formation.

A home improvement installer installer entered into a one year independent contractor agreement with the retailer under which it would install carpeting for the retailer’s customers. The contract was renewable each year, and could be terminated with 30 days notice by either party. The installer performed under the contract for several years, beginning as an installer for one of the retailer’s stores. Over time, it was put in “rotation” as an installer for other additional stores. To meet the demands of increasing business volume, the installer invested substantial funds in a larger warehouse and heavier equipment. The installer was encouraged by the retailer to “increase its business capacity,” and was told that if it further increased its business capacity, it would be given “six more stores” to service. The installer complied and was given six more stores. The retailer’s regional managers allegedly told the installer that “to grow with [us] you [have] to grow your own business. You [aren’t] going to operate out of a garage and have twenty stores. You had to grow along with them.”

Subsequently, the retailer implemented new “service level expectations” for installers to follow. The installer signed a new agreement. The terms of the new agreement assured that as long the installer was capable of completing its assigned work, the service agreement would continue to run as it had in the past. The new contract also assured that as the installer’s business capacity increased, the retailer would consider giving more stores to the installer. The contract, however, granted discretion to the retailer to decide what stores, if any, would be assigned to the installer, and stipulated that should the installer fail to meet the service level expectations, the contract could be terminated.

By this time, the installer was handling 20 stores, however the retailer soon began to cancel the installer’s assignment to those stores for carpet installations and reassign them exclusively to another installer. The installer was still given “hard surface” installation contracts, but the installer nevertheless decided to submit its resignation to the retailer. Only after the resignation was submitted, did the retailer provide the installer with 30 days’ notice that its relationship with the retailer was being terminated. The installer brought suit for breach of contract and bad faith.

The lower court granted summary judgment in favor of the retailer. The Court held that the retailer retained discretion to terminate the contract with 30 days’ notice, and under the terms of the contract the installer had no guaranteed or exclusive deal. As to the bad faith claim, the lower court held that, “without a motive or intent [a] discretionary decision that happened [to] result in economic disadvantage to the ... party [is] of no legal significance ... .” It therefore held that there was no breach of the implied covenant of good faith and fair dealing.

The Appellate Division reversed, reasoning that a lower court is required to “grant all favorable inferences to the non-moving party in deciding ‘whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law.’” Granting all favorable inferences to the installer, the Court held that the terms of the installer agreement, when considered in context, were sufficient to allow a rational fact-finder to conclude that the retailer breached the agreement. It noted that “where the terms of [a] contract are uncertain or ambiguous, ‘then the doubtful provision should be left to the jury.’” The Court then explained that a jury might agree with the installer’s interpretation of the agreement, under which the installer argued that the agreement did not provide the retailer with the right to terminate the installer’s services at all stores unless the retailer first provided the installer with a formal notice terminating the agreements.

The Court additionally held that the record established a prima facie claim for breach of the implied covenant of good faith and fair dealing. The Court reasoned that although the retailer retained discretion to terminate the installer agreement, a party exercising discretion must not “unilaterally use that authority in a way that intentionally subjects the other party to a risk beyond the normal business risks that the parties could have contemplated at the time of contract formation.” Thus, the Court held that a jury could find that so long as the installer complied with the retailer’s “service level expectations,” the installer could have expected to continue to receive work until terminated in accordance with the terms of the agreement. The Court observed that the required termination notice under the installer agreement did not come until approximately four months after the retailer stopped using the installer for carpeting jobs. The Court therefore reversed the lower court’s grant of summary judgment to the retailer.

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