The Supreme Court of Ohio reaffirms and clarifies law in Ohio on breach of contract, implied duty of good faith, punitive damages, releases of liability and fraud in Lucarell v. Nationwide Mutual Insurance Co.

On January 4, 2018, the Ohio Supreme Court issued its opinion in Lucarell v. Nationwide Mutual Insurance Company, 2018-Ohio-15 reaffirming and clarifying several important principles of law relating to breach of contract, punitive damages, releases of liability, and fraud. This case covers many issues that arise often in actions involving contracts, and it should be kept as handy reference to aid in briefing of issues before trial courts or explaining the current state of the law to your clients.

Punitive Damages and Implied Duty of Good Faith

The Ohio Supreme Court first reaffirmed that “in Ohio, punitive damages may not be awarded for a breach of contract. [It] also clarify[ied] that a party to a contract does not breach the implied duty of good faith and fair dealing by seeking to enforce the agreement as written or by acting in accordance with its express terms, nor can there be a breach of the implied duty unless a specific obligation imposed by the contract is not met.” Lucarell, 2018-Ohio-15, at ¶ 5. The Court further reaffirmed that “there is no independent cause of action for breach of the implied duty of good faith and fair dealing apart from a breach of the underlying contract.” Id. at ¶ 44.

Releases of Liability

With respect to releases of liability, the Court held that “a release of liability is an absolute bar to a later action on any claim encompassed within it absent a showing of fraud, duress, or other wrongful conduct in procuring it . . . .” Id. at ¶ 6. As for any allegation of duress, the Court definitively set forth for the first time “that a party seeking to avoid a release of liability on the basis that it was procured under duress is required to prove duress by clear and convincing evidence.” Id. at ¶ 52.

In addition, the court explained the “prevention of performance” doctrine and that it does not apply to releases of liability. The “prevention of performance” doctrine “provides that a party who prevents another from performing its contractual obligations cannot rely on that failure of performance to assert breach of contract.” Id. at ¶ 54. The Court held that the “prevention of performance” doctrine has no application and is not a defense to a release of liability because the release becomes effective on execution: “when a party signs and delivers a release, that party relinquishes all claims encompassed within it and has no other contractual or other duties to perform.” Id. at ¶ 56.

Fraud

Finally, the Court set forth the elements of a fraud claim and reaffirmed the long-recognized principle that “a party cannot predicate fraud on predictions or projections relating to future performance [such as those made in a pro-forma] . . . . [T]o be actionable, a misrepresentation must involve a matter of fact that relates to the past or present.” Id. at ¶ 63. In addition, the Court held that a fraud claim also cannot be based on a representation made to a third party but not made to the party claiming fraud. Id. at ¶ 66.

The full Syllabus of the Court is below:

“1. Punitive damages are not recoverable in an action for breach of contract. (Ketcham v. Miller, 104 Ohio St. 372, 136 N.E. 145 (1922), paragraph two of the syllabus, approved and followed.)

2. When a breach of contract involves conduct that also constitutes a tort, punitive damages may be awarded only for the tort, not for the breach, and any punitive damages awarded are subject to the statutory limitations on punitive damages imposed in R.C. 2315.21.

3. A party to a contract does not breach the implied duty of good faith and fair dealing by seeking to enforce the agreement as written or by acting in accordance with its express terms, nor can there be a breach of the implied duty unless a specific obligation imposed by the contract is not met.

4. An unconditional release of liability becomes effective upon execution and delivery and bars any claims encompassed within it, unless it was procured by fraud, duress, or other wrongful conduct.

5. A party seeking to avoid a release of liability on the basis that it was procured under duress is required to prove duress by clear and convincing evidence.

6. The prevention of performance doctrine — which states that a party who prevents another from performing a contractual obligation may not rely on that failure of performance to assert a claim for breach of contract — is not a defense to a release of liability and therefore cannot be asserted as a defense to a release.

7. A fraud claim cannot be predicated on predictions or projections relating to future performance or on misrepresentations made to third parties.”