Countrywide Services Corporation,plaintiff v. Sia Insurance Company, (A Risk Retention Group), Ltd.

Citations: 235 F.3d 390; 2000 U.S. App. LEXIS 31869; 2000 WL 1839322Docket: 00-1023

Court: Court of Appeals for the Eighth Circuit; December 15, 2000; Federal Appellate Court

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A contractual dispute arose between Countrywide Services Corporation and SIA Insurance Company following SIA's termination of their claims handling contract. Countrywide billed SIA over $165,000 for allegedly unpaid invoices, leading to a lawsuit after SIA's non-payment. The district court dismissed SIA's counterclaim, granted Countrywide's motion in limine to exclude certain evidence, and admitted the invoices as business records. The jury ruled in favor of Countrywide, awarding $165,945.26. On appeal, SIA challenged the dismissal of its counterclaim, the motion in limine, and the admission of invoices into evidence, but the appellate court affirmed the lower court’s decisions.

The contract between SIA and Countrywide allowed termination by either party with 60 days’ notice and granted SIA control over the disposition of claims upon termination. After SIA notified Countrywide of termination and initiated the formation of its own claims servicing company, International Managers, Inc. (IMI), Countrywide sued two former employees for fraud and tortious interference, while also invoicing SIA for the unpaid charges. SIA counterclaimed, arguing that Countrywide's lawsuit against its former employees breached the implied duty of good faith under their contract, which also served as a defense against Countrywide's claims.

The district court dismissed SIA's counterclaim against Countrywide and excluded evidence related to a lawsuit against Zinselmeier and Ruhnke, undermining SIA's affirmative defense. SIA's motion to exclude invoices as hearsay was denied. During trial, Countrywide established the invoices' admissibility under the business records exception, despite SIA's hearsay objections. The jury awarded Countrywide $165,945.26, covering unpaid invoices and interest. 

SIA appealed the dismissal of its counterclaim, which alleged that Countrywide breached the implied duty of good faith and fair dealing by filing a baseless lawsuit that hindered SIA's business operations. SIA argued this lawsuit was intended to obstruct its choice to appoint a different claims processing company after terminating their contract. Although Countrywide transferred SIA's files as per the contract, SIA claimed its actions disrupted a smooth transition, violating the expected benefits of the agreement. 

Missouri law recognizes an implied duty of good faith and fair dealing in contracts, which prevents a party from exercising their contractual rights in a way that undermines the spirit of the agreement or denies the other party the benefits they anticipated. The district court upheld the dismissal of SIA's counterclaim for failure to sufficiently plead a valid cause of action.

The contract's terms do not support SIA's expectations regarding the duty of good faith. The expected benefit was the transfer of SIA's files to a chosen claims handling company. Countrywide's obligations ended once SIA designated this new company and the files were shipped. Any potential breach of good faith would only arise if the files were rendered unusable, which did not occur. Countrywide had no duty to ensure the new claims company managed SIA's account effectively and was not required to forgo its rights to pursue legal remedies against former employees, even if this litigation disrupted SIA's operations. SIA's expectations exceed the scope of their agreement with Countrywide, justifying the district court's dismissal of SIA's counterclaim.

SIA also contended that the district court erred in excluding evidence of Countrywide's prior breaches as a defense for nonpayment of invoices. However, the court found that Countrywide's actions were too disconnected from the contract's express terms to constitute a breach of good faith, thus providing no justification for SIA's nonpayment. The district court did not abuse its discretion in granting Countrywide's motion in limine.

Additionally, SIA challenged the admission of Countrywide's invoices as hearsay, arguing they did not meet the business records exception. The district court's ruling to admit the invoices was upheld, as it did not constitute an abuse of discretion. Further commentary was deemed unnecessary for precedential value.

The district court's decision is affirmed, as stated by Judge Catherine D. Perry of the Eastern District of Missouri. SIAI contends that the Restatement (Second) of Contracts supports its claim that bad faith litigation breaches the duty of good faith and fair dealing. This duty applies to the assertion, settlement, and litigation of contract claims and defenses, and is violated by dishonest actions, such as fabricating a dispute. However, SIAI misapplies the Restatement, as the cases it cites pertain to disputes between contract parties, while the current litigation between Countrywide and its former employees does not involve SIAI or the contract in question. Additionally, Rule 803(6) of the Federal Rules of Evidence outlines an exception to the hearsay rule for business records, provided certain conditions regarding trustworthiness and regular business practices are met.