Lead Opinion
¶1 In this class action case, a jury found that the Department of Social and Health Services (DSHS) violated the implied duty of good faith and fair dealing in its contracts with individual providers who live with the DSHS clients for whom they provide care. The jury found that the providers incurred $57,123,794.50 in damages, and the judge awarded an additional $38,652,219.85 in interest. The DSHS clients who lived with their providers also filed a class action suit, but the judge did not allow them to recover any damages. We uphold the jury’s verdict for the providers, the judge’s decision to disallow the clients from recovering damages, and the dismissal of the providers’ wage claims, because all comply with Washington law. However, we reverse the judge’s award of prejudgment interest because the damages could not be determined with certainty.
FACTS
¶2 DSHS provides public assistance for in-home care for certain individuals with disabilities, referred to herein as “clients.” To provide this assistance, DSHS contracts with individual care providers to perform necessary services for clients. In their contracts with DSHS, the providers agree to assist with those personal care services and household tasks included in the client’s “service plan.” The providers also agree that DSHS will pay only for authorized services in the client’s service plan and that their monthly payment will not exceed the amount authorized in the service plan. The contracts explicitly incorporate by reference the service plan of the particular client, but because the contracts are signed before the service plan is created, key terms such as tasks to be performed and authorized hours are left undefined until long after the contract is executed.
¶3 Beginning in 2003, DSHS implemented the Comprehensive Assessment and Reporting Evaluation (CARE) process to determine how many hours of paid assistance a client was eligible to receive. Part of the CARE process was the shared living rule, which automatically reduced assistance for in-home care by 15 percent for clients that live with their providers. The rationale for the shared living rule was that the providers would already be performing certain household tasks (shopping, laundry, housekeeping, meal preparation, and wood supply services) even if they were not providing in-home care for a person with a disability. The shared living rule created an irrebuttable presumption that clients living with their providers needed 15 percent less paid assistance, even if those clients did need assistance with those household tasks.
¶4 When DSHS reduced the authorized hours of support for a client pursuant to the shared living rule, it did not change or reduce the service plan’s list of services the provider was required to perform. Indeed, even when a service plan specifically described a client’s need for help with shopping or cooking as “[t]otal dependence” and instructed the caregiver to complete such tasks, DSHS still eliminated payment for such household tasks because the client lived with the provider. See Clerk’s Papers (CP) at 3982-84. As a result, live-in providers were required by contract to perform necessary services without compensation. The structure of the agreements also resulted in DSHS’s requiring live-in providers to perform the same services as live-out providers for less compensation.
¶5 In 2004, three affected clients filed administrative appeals of determinations made pursuant to the shared living rule. The administrative law judges dismissed the appeals because they did not have authority to review the validity of agency rules. The three affected clients sought review in the courts, and in 2005, two trial courts held that the shared living rule was invalid under federal law. Those decisions were stayed pending a consolidated appeal, and in May 2007, this court affirmed the trial courts and found the rule violated federal law that required parity for individuals on Medicaid. Jenkins v. Dep’t of Soc. & Health Servs.,
¶6 Shortly after Jenkins, separate class action lawsuits were filed on behalf of clients and providers affected by the shared living rule between April 2003 and June 2008. The lawsuits were consolidated in 2009. Prior to trial, the trial judge granted summary judgment to DSHS on the providers’ claims that DSHS (1) wrongfully withheld wages, in violation of RCW 49.52.050 and .070 and (2) failed to pay the providers for all hours worked, in violation of the Washington Minimum Wage Act (MWA), chapter 49.46 RCW.
¶7 At trial, the jury found that DSHS “breached an implied duty of good faith and fair dealing with the Providers as to [DSHS’s] performance of a specific term in the Individual Provider Contracts.” CP at 2985. The jury found that the providers incurred $57,123,794.50 in damages. The trial judge ruled that prejudgment interest applied to the jury’s verdict for the providers, which amounted to $38,652,219.85.
¶8 The jury was not instructed to render an advisory verdict on the clients’ claim, but the judge accorded the jury verdict on the providers’ claim substantial weight in considering the clients’ claim. The trial judge then found that the clients “suffered the same damages as the Provider Class” but that they should not be awarded a money judgment because “the Client Class actually received the Rule related services and thus it sues to pass damages through to the Provider Class.” CP at 3473-75.
¶9 DSHS appealed both the $57.12 million judgment and the award of $38.65 million in prejudgment interest. The clients and providers cross appealed, arguing that the clients should have been awarded damages. We granted direct review.
ISSUES PRESENTED
¶10 1. As a matter of law, could the jury find that DSHS violated an implied duty of good faith and fair dealing?
¶11 2. Do the jury instructions accurately reflect the law related to the implied duty of good faith and fair dealing?
¶12 3. Did the trial judge correctly disallow compensation to clients in light of the judgment for providers?
¶13 4. Did the trial judge correctly grant summary judgment to DSHS on the providers’ wage claims?
¶14 5. Was the trial judge’s award of prejudgment interest proper?
¶[15 6. Should any party receive attorney fees?
ANALYSIS
1. The Jury’s Finding That DSHS Violated an Implied Duty of Good Faith and Fair Dealing Is Consistent with Washington Law
¶16 The jury found that when DSHS implemented the shared living rule and automatically reduced the hours it would authorize for live-in providers, it breached an implied duty of good faith and fair dealing as to its performance of a specific term in its provider contracts. DSHS claims that the jury’s finding fails as a matter of law because it (1) contradicts the jury’s other finding that DSHS did not breach a contract term; (2) adds a “free-floating obligation of good faith and fair dealing” to its contracts, Appellants’ Opening Br. at 5, 29-30; and (3) enforces duties arising from a statute and not the terms of the contract.
¶17 DSHS argues that as a matter of law, the jury cannot find a violation of the duty of good faith and fair dealing without first finding a violation of a contractual term. We disagree. As the Seventh Circuit has said, “It is, of course, possible to breach the implied duty of good faith even while fulfilling all of the terms of the written contract.” Metavante Corp. v. Emigrant Sav. Bank,
B. The Duty of Good Faith and Fair Dealing Arises When One Party Has Discretionary Authority To Determine a Future Contract Term
¶18 DSHS argues that the jury’s finding adds a “free-floating obligation of good faith and fair dealing” to its contracts. Appellants’ Opening Br. at 5, 29-30. However, as described below, the duty of good faith and fair dealing arises when one party has discretionary authority to determine a future contract term. Here, the contracts gave DSHS the discretionary authority to pay providers for authorized hours pursuant to the service plans, which were developed at the discretion of DSHS after the contracts were finalized. Thus, the duty of good faith and fair dealing arose in connection with those contract terms, and the jury found that DSHS breached that duty as to the performance of a specific contractual term. As a result, DSHS’s claim that the jury added a “free-floating obligation of good faith and fair dealing” is incorrect.
¶19 Under Washington law, “[t]here is in every contract an implied duty of good faith and fair dealing” that “obligates the parties to cooperate with each other so that each may obtain the full benefit of performance.” Badgett v. Sec. State Bank,
¶20 In particular, the duty of good faith and fair dealing arises “when the contract gives one party discretionary authority to determine a contract term.” Goodyear Tire & Rubber Co. v. Whiteman Tire, Inc.,
¶21 In this case, the contract gave DSHS discretion over future terms. DSHS has a specific contractual obligation to determine
¶22 The dissent contends that DSHS does not have discretion to determine the quantity of hours for which providers will be compensated because that amount is determined by the CARE process and DSHS does not have discretion to deviate from the amount determined through the CARE process. This ignores the fact that DSHS created the CARE process using its discretion. While there were some statutory limitations placed on DSHS, those statutes did not prescribe how DSHS was to determine the hours of care for which a DSHS client is eligible. Instead, DSHS had ample discretion to design the process that set the contractual term.
¶23 The dissent acknowledges that Aventa Learning, Inc. v. K12, Inc.,
¶24 The dissent contends that both parties were “bound by the hours authorized by the service plan,” dissent at 137 (emphasis omitted), and thus DSHS did not have discretion over the hours authorized. But it is unreasonable to conclude that DSHS was simply “bound” by the service plan when that plan was created using a formula of DSHS’s own design. In this case, DSHS used its discretion to implement a new rule that eliminated a certain amount of compensation for those service providers who lived with the clients. We do not see how one can come to the conclusion that DSHS had no discretion in determining the number of hours of care for which a client is eligible when DSHS was the entity that created the system — using its discretion— that determined those hours.
¶25 The dissent argues that DSHS did not have discretion because certain procedural steps would have to be taken for it to change the CARE process. But the existence of such procedural requirements simply means that DSHS did not have unconditional authority to change the process. While governmental agencies have some procedural limitations on their discretion, it does not follow that substantively they have no discretion. Such a conclusion is overly formalistic and ignores the on-the-ground reality that DSHS was the party that had control over the formula for authorized service hours.
¶26 As described above, when a party has discretion over a future contract term, it has an implied duty of good faith and fair dealing in setting and performing that contractual term. Here, the contract provided that service providers would be paid for the hours authorized in the service plan pursuant to the CARE process. DSHS was the party responsible for determining the hours that would be authorized because it designed the CARE process that produced that determination. When DSHS exercised discretion to create the systems that produced the service plans and reduce the hours those plans authorized for live-in providers, its actions were governed by an implied covenant of good faith, and the jury found that DSHS violated that covenant.
¶27 In light of the jury’s finding that DSHS breached the duty of good faith and
C. A Statutory Violation Can Constitute a Breach of the Duty of Good Faith and Fair Dealing
¶28 DSHS argues that even if there was a duty of good faith and fair dealing, no breach could be found because that would depend on enforcing external, statutory duties. DSHS argues that Medicaid comparability is a statutory duty owed to clients, not a contractual duty owed to providers. DSHS contends that because the providers’ legal basis for relief is created by statute, it cannot be enforced as an implied contractual duty.
¶29 DSHS confuses what is violated with how it is violated. While DSHS is correct that a breach of a duty imposed by statute does not create an action on a contract, Boguch v. Landover Corp.,
¶30 Because we uphold the jury’s verdict for the providers, we need not analyze the providers’ alternative theories of recovery.
2. The Jury Instructions Accurately Reflected the Law Related to the Implied Duty of Good Faith and Fair Dealing
¶31 DSHS claims that instructions 18 and 19 misstated the law related to the implied duty of good faith and fair dealing and that the judge abused his discretion by failing to give its proposed instructions 35, 35A, and 25A. “Jury instructions are sufficient when they allow counsel to argue their theory of the case, are not misleading, and when read as a whole properly inform the trier of fact of the applicable law.” Bodin v. City of Stanwood,
¶32 DSHS first claims that instruction 19 required the jury to apply the duty of good faith and fair dealing even if the shared living rule was not part of the contract. Appellants’ Opening Br. at 43-44. DSHS points to the first sentence of instruction 19:
If you find that reduction of authorized hours by application of the Shared Living Rule was not a part of the provider contract, you must consider the claim that [DSHS] violated the duty of good faith and fair dealing in applying the [shared living rule].
CP at 2980. However, that introductory sentence merely indicated that if the jury found that DSHS’s application of the shared living rule did not violate an express term of the contract, the jury must then turn to the question of whether the application of the rule violated the duty of good faith and fair dealing. The jury instructions overall make it quite clear that the duty of good faith and fair dealing applies only in relation to the performance of specific terms of the contract. See, e.g., CP at 2979 (Instruction 18 states, “[The] duty of good faith and fair dealing ... exists only in relation to the performance of specific terms in the contract and cannot be used to contradict contract terms or require a party to accept new or different contract obligations.”). Indeed, the question to the jury on the verdict form specifically states, “Do you find that [DSHS] breached an implied duty of good faith and fair dealing with the Providers as to [DSHS’s] performance of a specific term in the Individual Provider Contracts?” CP at 2985 (emphasis added). Taken in context, instruction 19 is not misleading.
¶33 In a very similar claim, DSHS claims another sentence in instruction 19 fails to indicate that the duty of good faith and fair dealing arises only in relation to the performance of a specific contract term. The relevant sentence states:
To establish breach of the implied duty of good faith and fair dealing, providers must prove that in reducing a client’s authorized hours by application of the [shared living rule], [DSHS] acted in a manner that prevented the provider from attaining his or her reasonable expectations under the contract.
CP at 2980. But this sentence does not attempt to list all of the requirements that providers must prove — it is simply listing one of the elements that the providers must prove in order to prevail on their claim. As noted above, the rest of the instructions describe the other elements of a breach of good faith and fair dealing claim, including that the duty arises only in relation to the performance of specific terms of the contract. See CP at 2980, 2985. “It has long been the rule of this court that individual instructions may not be singled out for consideration without reference to the entire set of instructions which were given.” Nelson v. Mueller,
¶34 Next, DSHS claims that instruction 19 was incorrect when it indicated that (1) if the contract gives DSHS unconditional authority to determine a contract term, there is no duty of good faith and fair dealing but (2) if the contract does not give unconditional authority “or is silent as to [DSHS]’s authority,” the jury must determine whether the duty has been breached. CP at 2980. DSHS does not actually argue that this inaccurately reflects the law and does not point to any cases that contradict this statement of the law; instead, DSHS essentially challenges how the jury applied the law to this case. In fact, the instructions accurately reflect the case law in this area: the duty of good faith and fair dealing arises when a contract gives a party discretionary authority to determine a contract term. See Goodyear Tire,
¶35 Finally, DSHS claims that the trial court abused its discretion when it declined to give proposed instructions 25A, 35, and 35A. Instruction 25A stated that the CARE tool and federal regulations were terms of the provider contract merely because the service plans and federal regulations are incorporated into the contract by reference. Instruction 35 addressed the same issues as instructions 18 and 19 but did not include certain sentences that DSHS found problematic, as described in the paragraphs above. Instruction 35A stated that the provider contracts did not include a duty to disclose to providers the impact of the shared living rule, and thus the failure to disclose did not constitute a breach of contract or of the implied duty of good faith and fair dealing.
¶36 A trial judge’s decision not to issue a jury instruction is reviewed for abuse of discretion. Stiley v. Block,
3. The Trial Judge Correctly Disallowed Compensation to Clients in Light of the Judgment for Providers
¶37 In their cross appeal, the clients challenge the trial judge’s ruling that they are not entitled to judgment for damages. The trial judge reasoned that the client class should not be awarded a money judgment because the clients sued to pass damages through to the provider class. Since judgment was entered for the providers, judgment could not also be entered for the clients to pass through to the providers. In accordance with this court’s policy of preventing double recovery, we affirm the trial judge’s ruling.
¶38 Although the parties cite no case law regarding this precise type of double recovery — judgment both for contractors that were not paid for providing services to clients and for the clients themselves — Washington courts have consistently implemented rules designed to prevent double recoveries. See Lange v. Town of Woodway,
¶39 In this case, the trial judge ruled that
the Client Class is not entitled to judgment for the damages because judgment for that amount will be entered in favor of the Provider Class and only one recovery can be permitted. The presence of a judgment entered in favor of the Provider Class precludes entry of a judgment in favor of [the] Client Class.
CP at 3475. Essentially, the trial judge reasoned that the two lawsuits were alternative theories of recovery and that only one should be allowed. See id. (“the Client Class actually received the Rule related services and thus it sues to pass damages through to the Provider Class”). The clients suggested that they could receive an award offset by the judgment for the providers. Presumably,
¶40 We affirm the trial judge’s reasoning. Although the parties chose to bring claims resting on alternative theories of recovery, the judge found that the providers and the clients suffered the same damages. As a result, entering judgments for both classes would amount to a double recovery, a result courts seek to avoid. The clients sought damages in order to compensate providers for the services they performed without compensation — compensation the providers received in the form of damages for their contract claim. Once judgment was entered for the providers, the trial judge appropriately disallowed a monetary judgment for the clients under their alternative theory of recovery.
¶41 The clients point to a seemingly inconsistent finding of fact from the trial judge: “The court finds that the Client Class suffered the same damages as the Provider Class, $57,123,794.50.” CP at 3473-74. However, the court went on to clarify that “[t]he Client Class has proved the same damages claimed by the Provider Class claim, except that the Client Class actually received the Rule related services.” CP at 3475 (emphasis added). Thus the trial judge’s earlier finding does not undermine his legal conclusion that he could not enter judgment for both classes because it would amount to double recovery.
¶42 Because we affirm the trial judge’s ruling that the clients are not entitled to recovery, we do not reach DSHS’s other arguments as to why the clients are barred from recovery.
4. The Trial Judge Correctly Granted Summary Judgment to DSHS on the Providers’ Wage Claims
¶43 Prior to trial, the judge granted summary judgment to DSHS on the providers’ claims that DSHS had (1) wrongfully withheld wages in violation of RCW 49.52.050 and .070 and (2) failed to pay the providers for all hours worked in violation of the MWA. The providers cross appealed this ruling, arguing that (1) DSHS is the payroll agent for the clients and thus has liability under RCW 49.52.050 and .070 and (2) DSHS had forced providers to perform unpaid, off-the-clock work, thus violating the MWA. We affirm the trial judge.
¶44 First, while RCW 49.52.050 and .070 do apply to agents of employers, the providers have not shown that DSHS is an agent for the client. The providers contend that an entity is an agent if it “has control over the funds or the decision to pay” based on Ellerman v. Centerpoint Prepress, Inc.,
¶45 Second, the MWA applies to the employer-employee relationship, which does not apply to DSHS’s relationship with the providers. The MWA defines “ ‘[e]mployer’ ” as “any person or group of persons acting directly or indirectly in the interest of an employer in relation to an employee.” RCW 49.46.010(4). The providers argue that DSHS was acting in the interest of an employer because it controlled payment to the providers. However, as discussed above, DSHS’s role as a payor of Medicaid funds did not create an agency relationship between the client and DSHS. In addition, under state law, the state is considered the employer of the providers “[s]olely for the purposes of
5. The Trial Judge’s Award of Prejudgment Interest Was Improper
¶46 DSHS appeals the trial court’s award of prejudgment interest, contending that the damages could not have been calculated with certainty prior to the entry of judgment. Prejudgment interest is available “(1) when an amount claimed is ‘liquidated’ or (2) when the amount of an ‘unliquidated’ claim is for an amount due upon a specific contract for the payment of money and the amount due is determinable by computation with reference to a fixed standard contained in the contract, without reliance on opinion or discretion.” Frier v. Refrigeration Eng’g Co.,
¶47 The damages in this case are the difference between what providers were paid under the shared living rule and what providers should have been paid under the individualized CARE formula. However, the CARE formula requires individualized data to be entered in order to determine the number of paid hours, and such data was not entered or collected during the times at issue in this case. Thus, at trial the jury heard from various experts who testified as to how to estimate what data would have been entered into the CARE formula without the shared living rule.
¶48 DSHS argues that because the individualized data called for under the CARE assessment was not collected during the period of the shared living rule, the authorized hours cannot be determined with exactness. If the authorized hours for each client cannot be determined with exactness, then the provider class’s damages cannot be determined exactly and prejudgment interest is not allowed. We agree. While the mathematical methods of estimation provided by the experts might be statistically sophisticated, ultimately they provided only estimates. Because the relevant data was never actually entered or collected, there was no way for the jury to determine how many uncompensated hours were worked and thus what the exact amount of damages was. Since the damages are neither liquidated nor ascertainable, prejudgment interest is unavailable.
6. There Is No Basis on Which To Award Attorney Fees to Any Party
¶49 DSHS has not requested attorney fees or appealed any trial court decisions on attorney fees and costs. Thus, this court has no basis for awarding attorney fees to DSHS.
¶50 The providers argue that they should be awarded attorney fees pursuant to RCW 49.52.070. However, that statute applies to employers who fail to pay wages. The providers prevailed on a contract claim and not on their wage claims. As a result, the providers have provided no statutory basis for attorney fees.
¶51 Finally, the clients argue that they should be awarded attorney fees under the policy underlying RCW 74.08.080(3). That statute provides for attorney fees for a DSHS client or applicant if “the superior court, the court of appeals, or the supreme court renders a decision in favor of the appellant.” RCW 74.08.080(3). The purpose of that policy is both punitive and deterrent, as it is “designed to encourage the agency to
CONCLUSION
¶52 After a lengthy trial, a jury found that DSHS violated its duty of good faith and fair dealing in the performance of a specific term of its contracts with providers. This verdict accords with relevant law, and we affirm it. We also affirm the trial judge’s ruling that the clients cannot recover because they sued only to pass the damages through to the providers and the decision to grant summary judgment to DSHS on the providers’ wage claims. However, we reverse the trial judge’s award of prejudgment interest because the damages could not be determined with certainty.
Notes
The providers claim that DSHS is challenging the evidentiary basis for the jury’s verdict and thus is barred from bringing this challenge because it failed to file a postverdict CR 50(b) or CR 59 motion. However, DSHS is not challenging the evidentiary basis for the verdict — it is challenging whether the law provides a basis for relief. Consequently, it is not barred from filing this appeal.
The respondents claim that DSHS’s exceptions to the jury instructions were not specific enough at trial to allow the trial judge to fully understand" their legal claims and thus DSHS failed to preserve its appeal. We disagree. After discussing each of the potential jury instructions, DSHS attempted to describe each of their exceptions in detail on the record and the trial judge responded, “And let me add here that we’ve had extensive discussions about these instructions. I believe I understand your positions. At this point I am not going to change the instructions that I’m going to give. And all of your arguments on why they are incorrect are preserved in the record. You don’t need to put them in the record now; just make clear that you are excepting to them so that you’ve got an appealable issue.” 14 Verbatim Report of Proceedings at 2602. On this record, we do not see how we could conclude that DSHS did not properly describe their exceptions at trial.
Concurrence in Part
¶53 (concurring/dissenting) — While I concur in upholding the jury’s verdict for the provider class, I dissent as to the reversal of the trial court’s award of prejudgment interest. Awarding prejudgment interest on the contract damages due to the provider class in this case is consistent with Washington case law and its underlying policy. I would therefore affirm the award.
¶54 The lead opinion correctly states the rule on when prejudgment interest is warranted but misapplies it, failing to adhere to our prior cases. The rule is that prejudgment interest is available
(1) when an amount claimed is “liquidated” or (2) when the amount of an “unliquidated” claim is for an amount due upon a specific contract for the payment of money and the amount due is determinable by computation with reference to a fixed standard contained in the contract, without reliance on opinion or discretion.
Prier v. Refrigeration Eng’g Co.,
¶55 This case is remarkably similar to Stevens v. Brink’s Home Security, Inc.,
¶56 As in Stevens, the providers’ damages in this case were capable of being determined with exactness by using an hours worked times hourly rate calculation. Here, both parties used reliable mathematical calculations to determine the number of unpaid
¶57 Although a claim is unliquidated if the fact finder must exercise discretion, Washington cases have stressed that the act of fact finding is distinct from the exercise of discretion. In Dautel v. Heritage Home Center, Inc.,
[l]ike Dautel, where the trial court exercised discretion only to find the appropriate commission percentage, the trial court here exercised discretion only to find the appropriate market price. The amount . . . actually owed could be computed with exactness once the trial court found that $8.25 per cubic yard was the market price.
Egerer,
¶58 By comparison, Washington cases establish that a claim is unliquidated where the amount claimed may not be arrived at by computation but instead requires the jury to make an award based on opinion or discretion. See Aker Verdal A/S v. Neil F. Lampson, Inc.,
¶59 The lead opinion concludes that prejudgment interest is not proper here because
¶60 Moreover, as we previously noted, “ ‘It may be safely said that the tendency has been in favor of allowing interest rather than against it, and that the degree of certainty or ease with which the approximate amount can be ascertained has grown less and less stringent.’ ” Prier,
¶61 Although the jury found DSHS’s expert witnesses persuasive and ultimately adopted a number within its range of damage calculations, DSHS now contends that the damages could not have been calculated with certainty prior to the entry of judgment. But DSHS has always been able to calculate the amount it owed based on the contract formula. In fact, the hours and corresponding lost wages leading to the jury’s verdict were calculated and based upon DSHS’s own regulations and data, statistical analysis, and wage and benefit information in the collective bargaining agreements.
Although the amount of damages awarded to the providers is substantial, part of that is because DSHS chose to continue applying the shared living rule for years after the first trial court held it to be invalid. The complexity in this case was perhaps caused by the State’s delay in continuing to apply the shared living rule after invalidation.
Dissenting Opinion
¶62 (dissenting) — The lead opinion embraces the providers’ misguided argument that the Department of Social and Health Services’ (DSHS) statutory obligations in developing client service plans translate into contractual discretion to determine a future contract term. As a result it authorizes the use of a private contract action to impose on the State what amounts to strict liability for misinterpreting federal Medicaid comparability law. I respectfully dissent. I would reverse the judgment in favor of the providers on their claim for breach of the implied duty of good faith and fair dealing, and I would affirm the trial court’s dismissal of their alternative claims. I would also affirm the trial court’s decision disallowing recovery to the client class but on the ground that the client class action is barred by the statute of limitations or a failure to exhaust administrative remedies.
A. The providers’ claim for breach of the implied duty of good faith and fair dealing fails as a matter of law
¶63 The duty of good faith and fair dealing implicit in a contractual relationship “obligates the parties to cooperate with each other
¶64 Here, the providers sought recovery on the theory that “the contract includes an implied duty of good faith and fair dealing in [DSHS]’s performance of the contract, specifically in making its determination of the maximum authorized hours for which it would compensate a provider.” Clerk’s Papers (CP) at 2972 (Jury Instruction 11). They argued that the “contract obligated [DSHS] to pay for all authorized services provided under the contract and that [DSHS] breached the contract when it reduced authorized hours by application of the Shared Living Rule.” Id. The jury was instructed that DSHS reserved contractual discretion in determining the maximum hours for which it would compensate a provider if the contract did not give DSHS unconditional authority to determine the hours or was silent as to its authority. CP at 2980 (Jury Instruction 19).
¶65 This approach to establishing a duty of good faith and fair dealing was misguided from the start. DSHS’s obligation to determine authorized hours of care for each client is not a contractual obligation, express or implied. Rather it is a statutory duty owed to the clients, not the providers, and the contract simply requires DSHS to pay each provider based on the individual client’s service plan. As explained below, DSHS retained no discretion under the contract giving rise to the implied duty of good faith and fair dealing.
1. As a matter of law, the terms of the contract did not leave DSHS discretion requiring application of the implied duty of good faith and fair dealing in developing each client’s service plan
¶66 The interpretation of a contract can be a mixed question of law and fact. Mut. of Enumclaw Ins. Co. v. USF Ins. Co.,
¶67 Here, the providers have not argued that the contract is ambiguous or that we must resort to extrinsic evidence to ascertain its meaning. Instead, they argue the contract implies a duty of good faith and fair dealing because it contains a discretionary term. See Br. of Resp’ts Rekhter et al. at 24;
¶68 As a matter of law, the contract here did not contain an unstated future term that DSHS retained discretion to determine. The lead opinion wrongly concludes otherwise. The relevant contract language reads:
DSHS will pay the Contractor the established rate for services per client in the geographic area where services are provided within Washington State. Rates will apply to all services authorized and provided under this Contract no matter what the payment source. The monthly payment for all services provided to any client will not exceed the amount authorized in the client’s Service Plan. Rate changes will not require a Contract amendment. Notification of rate increases will be made by publication of the DSHS Aging and Adult Services Administration rates in the Contractor’s geographic area. Published rates are not disputable.
DSHS will only reimburse the Contractor for authorized services provided to clients in accordance with this Contract’s Statement of Work and the client’s Service Plan.
Appellants’ Opening Br., App. at 32 (Client Service Contract, Individual Provider Services (Contract) § 4(b), (e)). Under the express terms of the contract, DSHS was required to pay the providers for the hours authorized by the client’s service plan. DSHS did not retain discretion under the contract to modify the hours for which the provider was to receive payment. That figure was to be determined solely by reference to the client’s service plan. Any discretion DSHS exercised in creating client service plans was not part of the performance of the provider contracts but was integral to DSHS’s statutory duty. See, e.g., RCW 74.39-.005(5) (charging DSHS with ensuring that long-term care service options are made available to functionally disabled persons while “maximizing] the use of financial resources in directly meeting the needs of persons with functional limitations”).
¶69 The lead opinion argues:
DSHS prepared the service plans after the contract was formed with the providers and after the providers began performing services. Thus, at the time that DSHS and an individual provider executed a provider contract, neither DSHS nor the provider knew what services would be needed by the clients or how much would be paid to the providers. These provisions give DSHS the discretion to set a future contract term: the quantity of hours and the types of services for which providers will be compensated.
Lead opinion at 113-14. This misapprehends the nature of discretion in setting a contract term. It confuses a promisor’s reservation of the right to reject or alter a contract based on preference or caprice with setting a term in a mutually agreed upon manner. The latter scenario is what occurred here, as a discussion of the cases cited by the providers and the lead opinion makes clear.
¶70 The lead opinion and the providers begin with Goodyear Tire,
¶71 Importantly, Goodyear Tire held that the duty did not apply. This was because the contract expressly allowed Goodyear to sell tires in Whiteman’s trade area, with no conditions attached. Id. at 741. The contract did not obligate Goodyear to perform in a discretionary manner. “ ‘[A]s a matter of law, there cannot be a breach of the duty of good faith when a party simply stands on its rights to require performance of a contract according to its terms.’ ” Id. at 740 (quoting Badgett,
¶72 Goodyear Tire explains that “ ‘[t]he covenant may be relied upon only when the manner of performance under a specific contract term allows for discretion on the part of either party! ”
¶73 The cases cited by the providers do not demonstrate that a condition of performance is necessarily a discretionary performance. In Tymshare, Inc. v. Covell,
¶74 The providers argue that because DSHS employed a formula that determined the hours of paid care a client would receive, including the adjustments made by the shared living rule (SLR), DSHS retained the discretion to set a contract term. The providers mainly cite to Aventa Learning, Inc. v. K12, Inc.,
¶75 Aventa involved an asset purchase agreement executed between an acquired corporation (Aventa) and the acquiring corporation (KCDL) and KCDL’s parent company. The agreement promised Aventa, as consideration for the sale of its assets to KCDL, an “ Additional Earnout.’ ” Aventa,
¶77 Likewise, the providers’ reliance on Craig v. Pillsbury Non-Qualified Pension Plan,
¶78 Here, DSHS does not enjoy a similar contractual discretion to set hours. On the contrary, the amount paid to providers during the time period in question resulted from an automatic, across-the-board application of the SLR, which was a validly promulgated rule codified in the administrative code. While this court subsequently declared the rule to conflict with federal Medicaid comparability law in Jenkins v. Department of Social & Health Services,
¶79 In sum, under the contract here the providers agreed they would receive payment for whatever paid hours of care were authorized by the client service plans. Thus, the manner of performance under the specific contract term did not allow either contracting party to exercise discretion in determining hours. See Goodyear Tire,
2. The lead opinion’s discussion of whether an express term of the contract must be breached to trigger the implied duty of good faith and fair dealing is not necessary to the resolution of this case
¶80 The lead opinion opines that the duty of good faith and fair dealing can arise even when there is no breach of an express contract term. Lead opinion at 111-12. We have never before considered this question, as evidenced by the lead opinion’s citation to other jurisdictions in support of its proposition. Id. We should be cautious about weighing in on this question today. It concerns an area of significant debate among courts, and the question need not be addressed to resolve this case.
¶81 A leading treatise explains that courts are split on whether an express term must be breached before a breach of the implied covenant may be claimed:
While some courts allow a plaintiff to recover for breach of the duty of good faith and fair dealing even though there has been no breach of a specific contractual clause, provision or duty, perhaps the majority of courts declined to find a breach of the implied covenant of good faith and fair dealing absent breach of an express term of the contract. Under this view, there can be no independent cause of action brought for breach of the covenant of good faith and fair dealing, rather, the claim must be tied to an alleged breach of a specific contract term, often one that allows for discretion on the part of the party alleged to have violated the duty.
23 Williston & Lord, supra, § 63:22, at 514-16 (footnote omitted). We should be prepared to fully consider the conflicting state authorities before committing Washington to a position.
¶82 The authorities adopted by the lead opinion fail to set forth a clear line of reasoning for rejecting the necessity of a contract breach. In Carma Developers (California), Inc. v. Marathon Development California, Inc.,
¶83 The court in Carma did not consider what conduct would breach the implied duty in the absence of a breach of an express contract term. The closest the court came to such an inquiry was its acknowledgment that “[difficulty arises in deciding whether . . . conduct, though not prohibited, is nevertheless contrary to the contract’s purpose and the parties’ legitimate expectations.” Id. at 373. In other words, under Carma, conduct that is expressly permitted cannot constitute a breach of the implied duty; conduct that is not expressly permitted but also is not prohibited may constitute such a
¶84 Under the facts of this case and the posture of the parties’ arguments, we do not need to wade into this unsettled area of law. Unlike Carma, this case does not present a fact pattern where it is alleged that DSHS engaged in conduct that was neither expressly permitted by the contract nor expressly prohibited. Rather, the providers claim DSHS dealt itself discretionary authority to determine a future term of the contract. See Br. of Resp’ts Rekhter et al. at 24-30. I would conclude that it makes no difference in this case whether an express term must be breached to trigger the implied duty of good faith and save the broader question for another day.
B. The providers cannot prevail on their remaining claims for relief
¶85 The providers present a number of alternative theories under which they claim they are entitled to a judgment against DSHS. Because I would hold their contract claim must fail, I address the remaining claims that are not discussed by the lead opinion.
1. A remedy under Failor’s Pharmacy is not available here
¶86 The providers argue in the alternative that the judgment against DSHS may be affirmed under this court’s decision in Failor’s Pharmacy v. Department of Social & Health Services,
¶87 The providers read Failor’s Pharmacy to instruct that “[a] party contracting with the State is entitled to recover underpayments resulting from an invalid regulation.” Br. of Resp’ts Rekhter et al. at 35. The provider’s argue that here, the SLR was invalidated and thus the providers are entitled to recover underpayments. But Failor’s Pharmacy cannot be read as broadly as the providers propose. There, the payment schedule at issue was not properly promulgated as a rule according to the Administrative Procedure Act (APA), chapter 34.05 RCW. Hence, this court concluded that the payment schedule was procedurally invalid. Failor’s Pharmacy,
¶88 The contract at issue here is not void. Even if Failor’s Pharmacy could be read as broadly as the providers suggest, it is distinguishable from the present case. No party here has alleged, nor is there any finding, that the contract at issue was void as a result of the invalidation of the SLR. And, the SLR itself was not invalidated as a result of a procedural irregularity. See Jenkins,
¶89 Respondent SEIU and provider Cindy Weens cross appeal in the alternative on the issue of unjust enrichment. The lead opinion need not reach this issue, but because I would reverse the judgment against DSHS, I must address it. I would affirm the trial court’s decision to grant DSHS’s CR 50 motion for judgment as a matter of law on the unjust enrichment claim. CP at 3447.
¶90 As an initial matter, a word of clarification about the nature of this claim is necessary. The trial court pointed out that the providers’ complaint sought recovery under theories of unjust enrichment and quantum meruit. CP at 1734. The trial court further explained that the providers filed their complaint before this court’s decision in Young v. Young,
¶91 As noted, the trial court granted DSHS’s motion for judgment as a matter of law under CR 50, following the close of the providers’ case in chief. “The standard on a motion for judgment as a matter of law mirrors that of summary judgment.” Aba Sheikh v. Choe,
¶92 “A party to a valid express contract is bound by the provisions of that contract, and may not disregard the same and bring an action on an implied contract relating to the same matter, in contravention of the express contract.” Chandler v. Wash. Toll Bridge Auth.,
¶93 The contract clearly contemplates this point. The terms of the contract state that “[t]he monthly payment for all services provided to any client will not exceed the amount authorized in the client’s Service Plan.” Appellants’ Opening Br., App. at 32 (Contract § 4(b)). Per the contract, the providers accept “the DSHS payment amount,
¶94 The trial court correctly granted DSHS’s CR 50 motion because as a matter of law, a jury could not have found an implied contract on the same matter covered by the express terms of the contract.
¶95 In sum, none of the providers’ alterative claims prevail, and I would hold there is no basis in law to grant them relief.
C. The client class claim for monetary judgment should have been dismissed on summary judgment
¶96 The final issue to be resolved under my disposition of this case is whether the client class is entitled to a monetary judgment. The lead opinion holds that the client class cannot recover damages along with the providers because this would result in a double recovery. Lead opinion at 121. While I do not necessarily disagree with this analysis, because I would hold the providers are not entitled to recover at all, the double-recovery analysis is inapplicable to my resolution of this case. I would hold that the client class claims should have been dismissed on DSHS’s motion for summary judgment.
¶97 First, it is important to parse out the nature of the client class claims. As a class, the clients were allowed to join the providers’ claim for breach of contract or breach of the implied duty of good faith and fair dealing; as the lead opinion describes it, this was essentially a “pass through” claim. See lead opinion at 121. Under my resolution of this case, that theory of liability fails, so the client class is no more entitled to a monetary judgment grounded in contract than is the provider class. But the client class also sought recovery based on RCW 34.05.570(2) of the APA, Jenkins, and RCW 74.08.080(3).
¶98 The trial court seemed to assume that because Jenkins invalidated the SLR, a claim for retroactive compensation was necessarily proved and the only question left was the measure of damages. CP at 455 (explaining, “I conclude that this court does have jurisdiction to decide the number of service hours wrongfully withheld from an in-home care recipient by application of the SLR and to award judgment to the recipient for retroactive compensation for those hours”). The trial court erred as a matter of law. I would hold that this claim should have been dismissed on summary judgment for the reasons DSHS
¶99 Under RCW 74.08.080(2)(a), individuals must file a challenge to a public assistance determination within 90 days of the determination. Thus, every member of the client class who failed to do so is barred from recovery in this lawsuit. DSHS recognizes that a small subset of clients within the class had assistance determinations made within the 90 days preceding the filing of this complaint on May 4, 2007. While DSHS appropriately concedes that those clients are therefore not time barred from bringing a claim, those members of the client class are nevertheless barred from recovery because they did not exhaust their administrative remedies as required by RCW 34.05.534.
1. Statute of limitations and equitable tolling
¶100 Turning first to the statute of limitations questions, the client class argues that the time bar applicable to APA claims has no bearing on claims brought pursuant to RCW 34.05.570. Br. of Resp’ts Rekhter et al. at 60-61. They suggest a claim to invalidate agency rules can thus be brought at any time under RCW 34.05.542(1) and result in the retroactive restoration of benefits under RCW 74.08-.080(3). Id. at 59-61. This misapprehends the statutory scheme under the APA and chapter 74.08 RCW. A petition for judicial review may be filed at any time subject to other requirements of the APA or of another statute. RCW 34.05-.542(1). The requirements of the APA and another statute are fatal to the client class claims here. RCW 74.08-.080(2)(a) requires a challenge to a DSHS determination be brought within 90 days of the agency action. RCW 34.05-.542(2) requires a petition for judicial review of an agency order be brought within 30 days of service of the final order. Nothing in RCW 74.08.080(3) authorizes retroactive monetary damages for an untimely rule challenge that might have been substantively successful.
¶101 Insofar as the client class complaint sought to invalidate the SLR, it asked for prospective invalidation. CP at 32. The trial court appropriately recognized that the client class claim to invalidate the SLR was moot in light of Jenkins but that the class further claimed monetary relief, viz. back-benefits dating to April 2003. See CP at 454, 3474-75. Such a claim is fully subject to the statute of limitations that the legislature established to set a limit on the state’s exposure to liability. The trial court believed it could equitably toll the limitation provision in RCW 74.08-.080(3). 2 Pretrial Verbatim Report of Proceedings (VRP) at 247. As a matter of law, the trial court erred in so holding.
¶102 Equitable tolling gives a court power in equity to set aside a judgment, even where the statute of limitations on a challenge to the judgment has run. Ames v. Dep’t of Labor & Indus.,
[W]e must decline [to apply equitable tolling], for, in our opinion, it would be a dangerous path to follow. Such a rule could only be in disregard of the universal maxim that ignorance of the law excuses no one. What is more important, it would substitute for a positive rule established by the legislature a variable rule of decision based upon individual ideas of justice conceived by administrative officers as well as by the courts.
Id. at 926.
¶103 The trial court’s oral ruling did not address our cautionary note in Leschner that
¶104 Certainly our case law has recognized that some degree of vulnerability may allow for relief through equitable tolling. See Ames,
¶105 Here, there is no showing as to how the vulnerability of the members of the client class prevented them from timely challenging the actions taken by DSHS. Use of the SLR was spelled out in the Washington Administrative Code. Former WAC 388-71-0460 (2003); former WAC 388-72A-0095(c) (2003); former WAC 388-106-0130(3)(b) (2005); see Leschner,
¶106 Perhaps anticipating this conclusion, the client class argues that the action notices were categorically deficient in that they failed to disclose that the “right to an administrative appeal... was illusory because there was no jurisdiction over appeals of the SLR.” Br. of Resp’ts Rekhter et al. at 66-67. The problem with this view is that it misunderstands the administrative process. Although an administrative law judge cannot invalidate an agency rule in the course of determining a benefits challenge, the APA allows for the joining of a rule challenge to an administrative appeal, as the plaintiffs’ reliance on RCW 34.05.570 acknowledges. Indeed, this was the path followed by the plaintiffs in Jenkins. Moreover, an appeal may be filed directly in superior court, where it would be futile to exhaust administrative remedies. RCW 34.05.534(3). It proves too much to say that DSHS’s system of administrative appeals — mandated under the APA — is itself a basis to grant equitable tolling. If this were true, the limitation period under the APA would have no effect. In sum, the trial court erred when it concluded that the vulnerability of DSHS clients, and the nature of the administrative appeal process, justified equitable tolling. Such a conclusion would completely eviscerate the statute of limitations under RCW 74.08.080(2)(a) for each and every DSHS client.
¶107 Moreover, the trial court was incorrect that the clients acted with diligence, thus justifying the imposition of equitable tolling. The trial court reasoned that the clients and providers filed this complaint the day after Jenkins was decided. But it is difficult to understand how this constitutes diligence, other than diligence in seeking a retroactive application of the decision in Jenkins. As noted, there is no basis for such relief. The client class complaint appears to recognize as much because it frames its request for back benefits as an action under the APA and RCW 74.08.080 while (unnecessarily) asking for “prospective” invalidation of the SLR. CP at 31. While the plaintiffs are correct that retroactive relief is available in an action challenging the validity of an agency rule, the law also requires that such an action be timely.
2. Exhaustion of remedies
¶108 Some members of the client class challenge adverse decisions made within 90 days of the date this action was filed, May 4, 2007, thereby satisfying the statute of limitations in RCW 74.08.080(2)(a). However, they must still demonstrate that the court can excuse their failure to exhaust their administrative remedies. See RCW 34.05.534 (barring judicial review if administrative remedies are not exhausted). Once Jenkins was decided on May 3, 2007, claimants had an administrative remedy: the SLR was invalid and a challenge to its imposition would have resulted in a readjustment of hours. There can be no argument that seeking administrative relief would have been futile at this juncture, yet futility is the only argument the client class advances for not requiring exhaustion. Because this argument fails, I would hold that this subset of class plaintiffs cannot recover in this action.
¶109 The implied duty of good faith and fair dealing arises only where the manner of performance leaves a contracting party discretion in fulfilling its obligations under the contract. Here, DSHS’s performance was not conditioned on an act of discretion but was governed by the statutes, rules, and regulations the agency was bound to follow. As a matter of law, there was no discretion implicating the implied duty of good faith and fair dealing, and the providers’ claim premised on this theory should have been dismissed. As the providers’ remaining claims are not viable, I would reverse the judgment in their favor. I would also reverse the order granting summary judgment on the client class claims, most of which are barred by the applicable statute of limitations and the remainder of which are barred by the failure to exhaust administrative remedies. Accordingly, I dissent.
Reconsideration denied June 5, 2014.
I agree with, the lead opinion’s analysis concluding DSHS preserved its issues on appeal and with its discussion of attorney fees. Thus, I do not address these issues.
The Storek court explained that the rationale behind tests “for evaluating a promisor’s satisfaction relates to the familiar issue of whether a promise is illusory.”
Parallel reasoning applies when the promisor is expressly given absolute discretion to perforin and when the promisor’s performance is expressly conditional upon the promisor’s satisfaction. In both instances, courts will imply a covenant of good faith to limit the promisor’s express contractual authority only when necessary to create mutuality. [Where] the promisor has discretion to perform but has given other consideration or, when, as here, the promisor’s performance is conditional on his objectively reasonable satisfaction, then the promisor’s ability to avoid performance is sufficiently curtailed, the promise is not illusory, and the covenant of good faith and fair dealing need not be implied to create a binding promise.
Id. (emphasis added).
Class representative Leya Rekhter has filed a brief with this court. So has named plaintiff Cindy Weens, along with the providers’ union, the Service Employees International Union (SEIU). I refer to these parties collectively as “the providers.” When citing to their briefing, I designate whether it is Rekhter’s brief or the brief of SEIU and Weens.
The providers cite to a single instance in which they claim DSHS “acknowledged that the contracts vested it with discretion.” Br. of Resp’ts Rekhter et al. at 25 (quoting Verbatim Report of Proceedings at 1868-69). What the providers quote is argument by DSHS counsel on a CR 50 motion to dismiss the providers’ breach of contract claim (a claim that did not survive the jury’s review). In the face of DSHS’s repeated assertions that the contract did not contain a discretionary term and lacking any citation to testimony from DSHS employees about such discretion, it is unreasonable to conclude DSHS conceded this point.
The lead opinion, claims that I would hold DSHS is “exempt from the duty of good faith and fair dealing,” lead opinion at 114, because I would distinguish the situation in Aventa from the one here. On the contrary, a government agency is certainly bound by good faith and fair dealing. But the CARE tool, and its relationship to the contract at issue here, is qualitatively different from the formula and contract at issue in Aventa.
The other case the lead opinion relies on for the proposition that breach of an express term is not needed to give rise to the implied duty, Metavante Corp. v. Emigrant Sav. Bank,
I agree with the lead opinion’s resolution of the providers’ wage claims. Lead opinion at 121-23.
The providers are not relying on Failor’s Pharmacy in support of a quantum meruit claim. See Br. of Resp’ts Rekhter et al. at 35-36 & n.15; Br. of Resp’ts SEIU Healthcare 775NW & Cindy Weens at 45-50.
The providers argue that a “Failor’s Pharmacy remedy has been applied expressly to other DSHS failures to follow federal law.” Br. of Resp’ts Rekhter et al. at 36 (citing McGee Guest Home, Inc. v. Dep’t of Soc. & Health Servs.,
But see
DSHS quotes Young for the proposition that unjust enrichment may only be applied “ ‘absent any contractual relationship.’ ’’Appellant’s Reply/Cross Resp. Br. at 52 (quoting Young,
The providers have not characterized the matter at issue differently. But, they bypass the discussion of whether the issue here is controlled by the express contract and move directly to the elements of unjust enrichment. See Br. of SEIU at 48. That move is premature if the express contract covers the point in contention.
The APA generally does not provide for monetary damages. However, the provision of the APA codified in RCW 34.05.574(3) allows a court to “award damages, compensation, or ancillary relief only to the extent expressly authorized by another provision of law.” RCW 74.08.080(3) provides that on a petition for judicial review of an agency action, “[i]f a decision of the court is made in favor of the appellant, assistance shall be paid from the date of the denial of the application for assistance.” Thus, the client class claim for back benefits is premised on RCW 74.08.080(3).
The providers claim that DSHS failed to preserve a challenge to the trial court’s decision concerning the client class claims. There is no support in the record or briefing for this contention. DSHS’s timely notice of appeal clearly encompassed the trial court’s ruling on the client class. Its briefing assigns error to challenged portions of the trial court’s order concerning the client class and fully argues those points. Appellants’ Opening Br. at 7-8 (assignments of error 4, 5), 59-74 (argument); Appellants’ Reply/Cross Response Br. at 36-49 (argument).
The providers argue that the standard of review to be applied to “the exercise of inherent equitable powers is the highly deferential ‘abuse of discretion’ standard.” Br. of Resp’ts Rekhter et al. at 63. The providers are mistaken. Whether a statute of limitation applies is a question of law that this court reviews de novo. Even if the providers are correct that the standard of review on this issue is abuse of discretion, the trial court misapplied the law, as I explain below, rendering its decision an abuse of discretion.
Since Leschner, we have suggested that in order to avail one’s self of equitable tolling, the party seeking to circumvent a statute of limitations must show both an incompetency that prevented knowledge of the adverse determination and “some misconduct on the part of the [ageneyl in communicating its order to the claimant.” Kingery v. Dep’t of Labor & Indus.,
The client class claims that in Berry v. Burdman,
In concluding that administrative actions would have been futile, the trial court noted the large number of individuals who would have had to file administrative challenges. See, e.g., 2 Pretrial VRP at 243, 247. To the extent the judge was suggesting the large number of claimants would have made an administrative appeal futile, there is not support for such a conclusion in the APA. A class is not excused from exhausting administrative remedies.