The opinion of the court was delivered by: John M. Facciola U.S. Magistrate Judge
Plaintiff C&E Services, Inc. ("C&E") brought suit against defendant Ashland Inc. alleging that Ashland committed fraud, breach of fiduciary duty and breach of the duty of good faith and fair dealing when it failed to disclose information about a government audit. Ashland counterclaimed against C&E claiming that C&E breached the contract, its duty of good faith and fair dealing and that Ashland is entitled to equitable indemnification for a settlement that it paid to the government. A jury trial was held in April 2008, and the jury concluded that Ashland had breached its fiduciary duty and the duty of good faith and fair dealing to C&E, but had not committed a fraud. The jury also found that C&E breached its duty of good faith and fair dealing to Ashland but had not breached the contract. The issue of equitable indemnification was reserved for this Court's decision. Prior to submission of this case to the jury, both parties filed motions for judgment as a matter of law under Federal Rule of Civil Procedure 50(a). Those motions were denied from the bench on May 1, 2008. Now pending are the parties' renewed motions for judgment as a matter of law filed pursuant to Rule 50(b).
Ashland and C&E are both manufacturers of water treatment products. In 1987, the parties entered into an agreement whereby C&E would purchase products from Ashland and resell them to the public. The agreement explicitly stated that C&E would serve as Ashland's agent. Both Ashland and C&E sold products to the federal government in accordance with approved General Services Administration ("GSA") schedules. In 1997, the government audited Ashland's GSA schedule and alleged that Ashland had not made discounts available to government customers that had been made available to other customers, i.e. that its prices were "defective," a serious allegation that could lead to its disbarrment. Ashland, however, entered into a settlement agreement with the government that resolved its concerns and decided not to renew its GSA schedule.
At that time, Ashland and C&E negotiated an amendment to their 1987 agreement. Where in the past C&E sold Ashland's products under Ashland's GSA schedule, the amendment provided that C&E would add Ashland products to its own GSA schedule and sell them directly through that schedule. C&E argues that Ashland did not tell C&E that the government had found Ashland's prices to be defective, leading C&E to use the same prices that the government had found to be defective when used by Ashland.
C&E took efforts to try and add Ashland's products to its GSA schedule, and, in the meanwhile, began selling Ashland's products to government customers. In its application to the GSA, C&E certified that the prices it charged government buyers were the same as the lowest prices it charged its private clients. C&E continued to charge the same prices that Ashland had charged and that the government claimed were defective. The government investigated C&E and Ashland. Ashland settled with the government for $350,000. During the negotiation process, the question arose whether the settlement would absolve C&E of any liability, but the government representative insisted on more money before he would agree to absolve C&E as well. Meanwhile, C&E and two of its executives were suspended from government contracting.
C&E claims that it would have never charged the "defective" prices had Ashland told it that a government audit had found the prices to be "defective" and that C&E was suspended because of the defective prices. Ashland, however, claims that the suspension arose out of C&E's decision to sell products that were not on their GSA schedule without disclosing that fact.
This case went to trial for 14 days in April and May of 2008. Both parties moved for judgment as a matter of law pursuant to Rule 50 of the Federal Rules of Civil Procedure at the close of their cases in chief. Both motions were denied from the bench on May 1, 2008 and the issues were submitted to the jury. The jury awarded C&E $219,000 in damages for breach of the implied covenant of good faith and fair dealing and $45,000 in prejudgment interest; $340,000 in damages for breach of fiduciary duty and $100,000 in prejudgment interest. The jury also awarded Ashland $3,200 for breach of the duty of good faith and fair dealing. A judgment was entered consistent with the jury's verdict, and the parties now renew their motions for judgment as a matter of law under Rule 50.
Federal Rule of Civil Procedure 50(a) provides, in pertinent part, that "[i]f . . . a court finds that a reasonable jury would not have a significant evidentiary basis to find for a party on that issue, the court may (A) resolve the issue against the party." Fed. R. Civ. P. 50(a). Therefore, judgment as a matter of law is first appropriate when "no reasonable juror could reach the verdict rendered in the case." Athridge v. Rivas, 421 F. Supp. 2d 140, 145 (D.D.C. 2006) (quoting U.S. ex rel. Yesudian v. Howard Univ., 153 F.3d 731, 735 (D.C. Cir. 1998)); see Fed. R. Civ. P. 50(a). When deciding a motion for judgment as a matter of law, the Court must "consider the evidence in the light most favorable to the non-moving party and mak[e] all reasonable inferences in its favor." Id. (quoting Pitt v. District of Columbia, 404 F. Supp. 2d 351, 353 (D.D.C. 2005), aff'd in part, rev'd in part on other grounds, 491 F.3d 494 (D.C. Cir. 2007)). Judgment as a matter of law in favor of the moving party is only proper if, under those circumstances, "there is no legally sufficient evidentiary basis for a reasonable jury to have found in [the non-moving party's] favor under controlling law." Pitt, 404 F. Supp. 2d at 353. The Court is not permitted to weigh the evidence or assess the credibility of witnesses. Hayman v. Nat'l Acad. of Scis., 23 F.3d 535, 537 (D.C. Cir. 1994). Thus, "even if the Court finds the evidence that led to the jury verdict unpersuasive, or that it would have reached a different result if it were sitting as fact-finder, that is not a basis for overturning the jury's verdict and granting judgment as a matter of law." Pitt, 404 F. Supp. 2d at 354 (citing 9 James Wm. Moore et al., MOORE'S FEDERAL PRACTICE § 50.60 at 50-87 (3d ed. 2002)).
If, as occurred here, a motion for judgment as a matter of law is not granted, the court is deemed to have submitted "the action to the jury subject to the court's later deciding the legal questions raised by the motion." Fed. R. Civ. P. 50(b). In such a situation, the movant may, after a verdict against her, "file a renewed motion for judgment as a matter of law." Id. The movant seeking judgment as a matter of law is arguing that, even if the jury were to resolve issues of fact in her opponent's favor, the movant is still entitled to prevail.
With one exception where it claims that there was insufficient evidence of proximate cause for the damages the jury awarded, Ashland proceeds on this basis, insisting that, even if there was a sufficient evidentiary basis for the jury's verdict, the law does not entitle plaintiff to the verdict it secured because (1) principals, like Ashland, do not owe agents any fiduciary duty; (2) even if such a duty was owed at one point, it could not pertain to or control the relationship between Ashland and C&E when they were negotiating a modification of their relationship; (3) their new relationship did not constitute a joint venture in which the parties owed each other fiduciary duties; (4) C&E's damages, as a matter of law, could not have been proximately caused by Ashland's conduct; (5) there is no independent cause of action for breach of the implied duty of good faith and fair dealing, whether the contract at issue is governed by the Uniform Commercial Code or the common law; (5) recognizing such an action duplicates the award C&E received on its breach of fiduciary duty claims and (6) C&E's recovery is barred by what Ashland says is the principle expressed as "in pari delicto."
A. Breach of Fiduciary Duty
C&E alleges that it was in a fiduciary relationship with Ashland whereby Ashland owed C&E a fiduciary duty at the time that the parties entered into the 1998 amendment. In support, C&E says that the 1987 agreement created a principal-agent relationship, with C&E acting as the agent and Ashland as the principal. It argues that Ashland owed C&E a fiduciary duty by virtue of that relationship, and the relationship endured until the execution of the 1998 amendment. Further, in 1998, C&E alleges that the relationship changed to a joint venture, which also carries fiduciary duties. The jury was instructed that if it found that the parties were either in a principal-agent relationship, or were joint venturers, then Ashland owed a fiduciary duty to C&E.
Ashland responds with several arguments. First, Ashland says that, while it is "black letter law" that agents owe fiduciary duties to their principals, there is no authority for the proposition that principals owe fiduciary duties to their agents. Second, Ashland argues that the parties could not have been in a fiduciary relationship during the course of the negotiations leading up to the 1998 amendment. Third, Ashland argues that the parties were not joint venturers, but instead entered into a manufacturer-distributor relationship, which does not carry fiduciary duties.
The jury was presented with two independent bases for finding the existence of a fiduciary duty: (1) a principal-agent relationship and (2) a joint venture. Even if I were to find in Ashland's favor on the principal-agent relationship argument, for example, sufficient evidence may still exist to support the jury's finding that Ashland breached a fiduciary duty based on the alternate theory that the parties were joint venturers. The jury's verdict should only be set aside if Ashland prevails on all of its arguments, and I will address each of these arguments in turn.
1. Whether Ashland could have Owed C&E a Fiduciary Duty by Virtue of Its Status as a Principal in An Agency Relationship
Ashland argues that it cannot owe C&E a fiduciary relationship by virtue of any principal-agent relationship because principals do not owe fiduciary duties to their agents. In support, Ashland cites Multicom, Inc. v. The Chesapeake and Potomac Telephone Co., No. 88-CV-1886, 1988 WL 118411, at *4 (D.D.C. Oct. 27, 1988), where Judge Gasch held that "[a]lthough it is well established that an agent owes a fiduciary duty to his principal, no corresponding fiduciary duty is owed by a principal to an agent." Id. Judge Gasch's opinion stands alone in this Circuit, and the D.C. Court of Appeals has not yet ruled, but various courts nationwide that have recently been confronted with this issue have agreed with Judge Gasch. E.g., Fidelity Nat'l Title Ins. Co. v. Title First Agency, Inc., No. 06-CV-13961, 2008 WL 4371838, at *6 (E.D. Mich. Sept. 22, 2008); Warrentech Auto. Inc. v. Heritage Warranty Ins. Risk Retention Group, Inc., Nos. 07-C-3539, 07-C-6977, 2008 WL 4876936, at *5 (N.D. Ill. Aug. 12, 2008); MDM Group Assocs., Inc. v. CX Reinsurance Co. Ltd., U.K., 165 P.3d 882, 888 (Colo. Ct. App. 2007); Metro. Enters. Corp. v. United Techs. Int'l, No. 03-CV-1685, 2006 WL 522384, at *4 (D. Conn. Feb. 27, 2006).
Accordingly, I would be inclined to agree with Ashland's position that the D.C. Court of Appeals would follow those other courts had this issue been raised prior to the case being submitted to the jury. See Tidler v. Eli Libby Co., Inc. 851 F.2d 418, 423-25 (D.C. Cir. 1988).
After review of the many filings and arguments that Ashland has raised in this case, however, my initial suspicion was confirmed -- that I had yet to hear this argument. There is no discussion of this concern in the summary judgment briefing before Judge Sullivan, in Ashland's Rule 50 Motion for Judgment as a Matter of Law, in the various e-mails and filings regarding jury instructions, or in the arguments I presided over regarding the Rule 50 motions and jury instructions.
The initial jury instruction that plaintiff proposed contained the following sentence:
If you find that C&E and Mr. Biggs entered into a relationship with Ashland by virtue of which C&E and Mr. Biggs were to be the agents of Ashland, then Ashland owed C&E and Mr. Biggs a fiduciary duty of good faith and fair dealing in the incidents of their relationship.
Plaintiff's Proposed Jury Instruction No. 7 [#128-A]. At no point in the process of drafting the instructions did Ashland object to that statement. Instead, Ashland objected to the scope of the principal's duty to its agent. See Defendant Ashland Inc.'s Objections to the Court's Initial Determinations as to Jury Instructions [#176] at 5 ("Ashland objects to Plaintiff's Jury Instruction No. 7 because it misstates the principal's fiduciary duty to an agent. D.C. adopts the Restatement of Agency, which states that a principal's good faith duty extends only to information 'material' to the agent's actions 'on the principal's behalf.' Plaintiff's Proposed Instruction concerns duties owed by a parent company to a subsidiary under D.C. law."). Ashland then requested that the Court add the following definition of agency: "An agency is the fiduciary relationship which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control." Ashland's Proposed Revisions to the Court's Proposed Jury Instructions [#238-14] at 17. It also sought to add the word "material" to qualify the principal's duty to disclose facts to the agent. Id. Ashland did not, however, object in any way to the sentence that clearly instructs the jury that principals owe fiduciary duties to their agents. Thus, the final instruction that was read to the jury contained that language.
Similarly, in oral argument on the jury instructions and Rule 50 motions, both parties focused on whether a principal-agent relationship existed, and Ashland did not object to the underlying assumption that the existence of the relationship was important because the relationship itself imposed a fiduciary duty on Ashland. See generally Transcript of Proceedings (5/1/08) ("5/1/08 Tr.") [#231] at 61:3-66:8, 68:11-24, 70:15-71:25, 74:3-16, 105:9-25, 106:13-111:13. Finally, in its Rule 50 motion, captioned Defendant Ashland, Inc.'s Motion for Judgment as a Matter of Law [#174], Ashland specifically says "to the extent a fiduciary relationship existed between plaintiff and Ashland, it solely existed by reason of the principal-agent relationship." Id. at 17. At no point does it object to the proposition that Ashland, if found to be in a principal-agent relationship with C&E while negotiating the contract, would also owe C&E a fiduciary duty.
This motion is brought pursuant to Rule 50(b), which provides that, when the Court denies a motion for judgment as a matter of law brought at the close of the evidence, it is considered to submit the case to the jury subject to the Court's later deciding those legal issues. Fed. R. Civ. P. 50(b). Accordingly, "the posttrial motion is limited to those grounds that were specifically raised in the prior motion for judgment as a matter of law, . . . [and] the movant is not permitted to add new grounds after trial." Thomas v. Mineta, 310 F. Supp. 2d 198, 204 (D.D.C. 2004) (quoting Tolbert v. Queens Coll., 242 F.3d 58, 70 (2d Cir. 2001)); see also David v. District of Columbia, 436 F. Supp. 2d 83, 90 n.2 (D.D.C. 2006) ("Because defendants did not raise this argument in their original motion, the argument is deemed waived and will not be considered."), appeal dismissed, No. 06-CV-7131, 2006 WL 3086931 (D.C. Cir. Oct. 17, ...