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Warren Prescriptions, Inc. v. Walgreen Co.

United States District Court, E.D. Michigan, Southern Division

January 4, 2018

Warren Prescriptions, Inc., M.P.K., Inc., and Sax Discount Pharmacy, Inc., Plaintiffs,
v.
Walgreen Co., Defendant.

          OPINION AND ORDER DENYING DEFENDANT'S MOTION [24] FOR RECONSIDERATION OF DISTRICT COURT'S AUGUST 4, 2017 OPINION AND ORDER [23], AND DENYING MOTION [24] FOR CERTIFICATION TO MICHIGAN SUPREME COURT

          Nancy G. Edmunds United States District Judge.

         This matter is before the Court on Defendant's motion for reconsideration (docket 24) of the Court's August 4, 2017 opinion and order granting in part and denying in part Defendant's motion to dismiss (dkt. 23). In the alternative, Defendant makes a motion for certification to the Michigan Supreme Court. (Dkt. 24.) As part of the August 4 order, the Court denied Defendant's motion to dismiss on Plaintiffs' claims of breach of the indemnification provision and breach of the covenant of good faith and fair dealing. Defendant seeks reconsideration of these rulings.

         I. LEGAL STANDARD

         Pursuant to Rule 7.1(h) of the Local Rules for the Eastern District of Michigan, a party may file a motion for reconsideration within fourteen days after a court issues an order to which the party objects. Although a court has the discretion to grant such a motion, it generally will not grant a motion for reconsideration that “merely present[s] the same issues ruled upon by the Court, either expressly or by reasonable implication.” E.D. Mich. LR 7.1(h)(3). To persuade a court to grant the motion, the movant “must not only demonstrate a palpable defect by which the court and the parties . . . have been misled but also show that correcting the defect will result in a different disposition of the case.” Id. Defendant's arguments for why the Court should reconsider its rulings do not satisfy the requirements of Local Rule 7.1(h).

         II. Breach of Covenant of Good Faith and Fair Dealing

         With respect to Plaintiffs' claim for breach of the covenant of good faith and fair dealing, the Court again addresses Defendant's primary argument that “Michigan does not recognize an independent claim for a breach of the implied covenant of good faith and fair dealing.” (Def.'s Mot. at 2, dkt. 24, quoting Phillips v. Green Tree Servicing LLC, No. 15-13582, 2016 WL 627903, at *5 (E.D. Mich. Feb. 17, 2016); Op. and Order Aug. 4, 2017, at 15, dkt. 23, citing Albrecht v. Mortg. Elec. Registration Systems, Inc., 14-13834, 2015 WL 477828 (E.D. Mich. Feb. 5, 2015)).

The obligation of good faith is not an independent duty, but rather a modifier that requires a subject to modify. It is a principle by which contractual obligations or other statutory duties are to be measured and judged. Thus, while the obligation of good faith ... may affect the construction and application of [particular contractual provisions], it has no life of its own that may be enforced by an independent cause of action. [T]he common-law implied covenant of good faith and fair dealing ... is not enforceable as an independent cause of action, and the obligation of good faith has no application apart from some other contractual obligation or statutory duty.

U.S. ex rel. Walter Toebe Const. Co. v. Guarantee Co. of North America, 66 F.Supp.3d 925, 931 (E.D. Mich. 2014) (quoting Gorman v. Am. Honda Motor Co., 839 N.W.2d 223, 235 (Mich. Ct. App. 2013)).

         Consistent with this, the Court in its prior opinion distinguished those cases in which the courts did not allow a plaintiff to employ a claim for breach of the implied covenant of good faith and fair dealing as those in which a plaintiff alleges that the covenant of good faith and fair dealing creates an obligation not otherwise contemplated by contract; for example, in mortgage-related cases where the borrower alleges that the defendant breached the duty by failing to engage in loss mitigation assistance or exercise discretion in loan modification determinations. See e.g., Albrecht, 2015 WL 477828; and Phillips, 2016 WL 627903; see also Goodwin v. CitiMortgage, Inc., Case No. 1:12-CV-760, 2013 WL 4499003, at *7 (W.D. Mich. Aug. 19, 2013) (plaintiffs alleging that the defendants “had the discretion to modify [their] loan in accordance with HAMP and/or other loss mitigation programs” yet “[n]either the mortgage [n]or the note contain[ed] a reference to the Home Affordable Modification Program or any other type of loan modification program”). Nor can the covenant be used to override an express contractual term. See Taylor v. Countrywide Home Loans, Case No. 08-CV-13258, 2010 WL 750215 (E.D. Mich. Mar. 3, 2010) (plaintiffs used an allegation of breach of the covenant of good faith and fair dealing as “an attempt to override the express terms of the parties' agreement, which included express language permitting [the defendant] to take the actions about which plaintiffs[] complain”).

         Yet Michigan law also provides that “the covenant of good faith and fair dealing is an implied promise in every contract. The covenant is a promise that ‘neither party shall do anything which will have the effect of destroying or injuring the right of the other party to received the fruits of the contract.'” Appalachian Railcar Servs., Inc. v. Boatright Enters., Inc., 602 F.Supp.2d 829 (W.D. Mich. 2008) (citing Hammond v. United of Oakland, Inc., 483 N.W.2d 652, 655 (Mich. Ct. App. 1992)); see also Bolone v. Wells Fargo Home Mortg., Inc., 858 F.Supp.2d 825, 834 (E.D. Mich. 2012); Burkhardt v City Nat'l Bank of Detroit, 226 N.W.2d 678, 680 (Mich. Ct. App. 1975) (“Where a party to a contract makes the manner of its performance a matter of its own discretion, the law does not hesitate to imply the proviso that such discretion be exercised honestly and in good faith.”); Lowe's Home Centers, Inc. v. LL & 127, LLC, 147 Fed.Appx. 516, 523-24 (6th Cir. 2005) (“[W]here the manner of performance under a contract is left to the discretion of a party, that party may breach the contract by exercising its discretion in bad faith.”). “Discretion arises when the parties have agreed to defer decision on a particular term of the contract.” Stephenson v. Allstate Ins. Co., 328 F.3d 822, 826 (6th Cir. 2003) Discretion also arises when the contract “omits terms or provides ambiguous terms.” Grand Traverse Band of Ottawa and Chippewa Indians v. Blue Cross Blue Shield of Michigan, 2017 WL 3116262, at *7 (E.D. Mich. July 21, 2017) (citing Wedding Belles v. SBC Ameritech Corp., Inc., Case No. 250103, 2005 WL 292270, at *1 (Mich. App. Feb. 8, 2005)).

         Plaintiffs' good faith and fair dealing claim neither overrides nor contradicts express contract terms. See Stephenson, 328 F.3d at 826. Plaintiffs' allegations show that they rely on the covenant of good faith and fair dealing not to introduce a new term, but rather as a modifier to the existing terms of the contract, for example, those related to the deferred portion of the purchase price, and to prevent Defendant, for example, from “running the pharmacies . . . in a substandard manner during the First Twelve Month Period.” (Compl. ¶ 49; Am. Compl. ¶ 49); U.S. ex rel Walter Toebe Const. Co., 66 F.Supp 3d 931.

         This is a case in which the contractual obligation is tied to a condition and the only party with discretion to affect the condition after Closing is Defendant. Thus is ever there was a fact pattern that created an obligation different from the cases relied on by Walgreen's, this is that case. If the minimum number of prescriptions was to be met so that Plaintiffs receive the deferred payment, Plaintiffs, as the dependent parties, “must rely on the good faith of the party in control.” See Hubbard Chevrolet Co. v. General Motors Corp., 873 F.2d 873, 877 n.2 (5th Cir. 1989) (applying Michigan law) (“Only in such cases do the courts raise explicitly the implied covenant of good faith and fair dealing, or interpret a contract in light of good faith performance.”). The party in control, as of and following the Closing, was Defendant.

         To the extent Defendant relies on cases in which the court found that the plaintiff did not allege or plead any facts to support that the discretion was left to the defendant, Plaintiffs here have alleged that Defendant had discretion (am. compl. 44, 45), which is not inconsistent with any other allegations or the terms of the contract. See generally Liggett Rest. Grp., Inc. v. City of Pontiac, Case No. 256571, 2005 WL 3179679 (Mich. Ct. App. Nov. 29, 2005); McLaren Reg'l Med. Ctr. v. CompleteRX, Ltd., Case No. 16-14268, 2017 WL 3034615 (E.D. Mich. July 18, 2017).

         To the extent Defendant argues that Michigan law requires an “express conferral of discretion in a contractual duty, ” Liggett, McLaren and Taylor, on which Defendant relies, do not so state. Defendant's argument seems to imply a requirement that there be some magic words conferring discretion, yet these cases point out that the plaintiffs failed to identify and allege provisions in which the defendant had discretion. For example, the Liggett court pointed out that the “proposed amended complaint contained no allegations that the manner of performance of any express terms of the concession contract were discretionary with defendants and that the discretionary performance of those acts occurred in bad faith.” See Liggett Rest. Grp., Inc., 2005 WL 3179679, at *2 (In Liggett, like the other cases on which Defendant relies, the plaintiff attempted to use the covenant of good faith and fair dealing to imply a contractual term or other duty that was simply not part of the contract. The Liggett court noted that the “plaintiff acknowledged in its proposed amended complaint that the concessions contract was silent with regard to the booking and retaining of events. . . . [T]he conclusory allegation that the booking and retaining of events was a matter left to defendants' discretion under the concession contract is insufficient. Moreover, a review of the concession contract attached to the proposed amended complaint fails to reveal any terms from which it could be inferred that the act of booking and retaining of events was a matter of contract between the parties.”). The Liggett court found that the plaintiff “failed to plead an essential element of a claim for breach of the implied covenant of good faith and fair dealing because it failed to adequately allege that defendants had discretion in the manner of performance of the term of the concession contract upon which the breach of the implied covenant is based.” Id. at *2; see also McLaren Reg'l Med. Ctr. v. CompleteRX, Ltd., Case No. 16-14268, 2017 WL 3034615, at *5-6 (E.D. Mich. July 18, 2017) (“[T]he plaintiff's position here that the defendant had “discretion” under the agreement is counter-factual in light of its allegations that specific terms of the agreement defined what items should be billed one way and what items should be billed the other-i.e., that the defendant had no leeway to do one thing, because the agreement dictated that it must do the other. . . . Because the agreement does not purport to vest sole discretion in CompleteRX to determine or modify the criteria for deciding what is a ‘Specialty Drug, ' the gravamen of the plaintiff's claims of mis-billing comes down to simply determining whether or not the billings submitted conformed to the terms of the agreement, as drafted and construed by the parties, and does not implicate any independent duty on the plaintiff's part to behave in ‘good faith' during any discretionary performance.”); and Taylor v. Countrywide Home Loans, No. 08-13258, 2010 WL 750215, at *12 (E.D. Mich. Mar. 3, 2010) (“Discretion arises ...


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