## Facts

- Philip and Janet Carmichael purchased a propane distributorship in 1981 and, as part of the transaction, entered a contractor’s agreement under which Adirondack supplied propane for resale.
- The agreement contained a “key man” clause providing for automatic termination (without written notice) upon, among other events, Philip Carmichael’s death.
- In 1987, the Carmichaels explored selling the business to Adirondack but rejected Adirondack’s lower offers.
- Philip Carmichael died in a snowmobile accident on December 24, 1987, triggering the contract’s automatic-termination provision.
- After Philip’s death, Adirondack continued supplying propane while negotiating to purchase the business at prices Janet considered far below its value.
- After negotiations failed, Adirondack informed Janet it would no longer supply fuel products, forcing layoffs and asset sales and leaving customers without propane.
- Janet Carmichael and her company sued, alleging (among other theories) breach of the implied covenant of good faith and fair dealing in Adirondack’s termination-related conduct.
- A jury awarded $60,000 in compensatory damages and $100,000 in punitive damages for breach of the implied covenant.

## Issues

1. Whether prior arbitration and a federal antitrust action barred the good-faith claim under res judicata or collateral estoppel.
2. Whether the implied covenant of good faith and fair dealing can apply to termination-related conduct closely connected to performance or wind-up, despite automatic contract termination under a key man clause.
3. Whether the evidence was sufficient to support the verdict and to defeat Adirondack’s motion for a directed verdict.
4. Whether the jury instructions accurately stated Vermont law governing the implied covenant of good faith and fair dealing.
5. Whether punitive damages were waived or unsupported by the evidence.
6. Whether the trial court erred in refusing an accord-and-satisfaction instruction and in calculating interest.

## Decision

- The Vermont Supreme Court affirmed the judgment in full.
- The Court held that neither the prior arbitration nor the federal antitrust action precluded the implied-covenant claim.
- The Court upheld the verdict that Adirondack breached the implied covenant based on its post-termination conduct in continuing supply while pressuring for a low-priced acquisition and then cutting off supply.
- The Court held the evidence supported denying a directed verdict.
- The Court found no reversible error in the jury instructions on good faith.
- The Court upheld submission of punitive damages to the jury and the $100,000 punitive award.
- The Court found no error in declining an accord-and-satisfaction instruction and upheld the interest award.

## Legal Principles

- Vermont recognizes an implied covenant of good faith and fair dealing requiring “faithfulness to an agreed common purpose” in the performance of contract-related obligations.
- The implied covenant may govern conduct closely tied to performance and the wind-up of obligations arising from a contractual relationship, even after the contract has ended by its terms.
- A party may be liable for breach of the implied covenant when it uses termination-related leverage to defeat the other party’s reasonable expectations created by the relationship.
- Preclusion applies only when the elements of res judicata or collateral estoppel are satisfied; a distinct state-law implied-covenant claim is not barred merely because related disputes were previously arbitrated or litigated.
- Punitive damages may be submitted to the jury where evidence permits a finding of sufficiently wrongful conduct connected to the breach.

## Conclusion

The Vermont Supreme Court affirmed a jury verdict holding a propane supplier liable for breaching the implied covenant of good faith and fair dealing based on its termination-related conduct following automatic contract termination, and it upheld compensatory damages, punitive damages, and the challenged trial rulings.


Carmichael v. Adirondack Bottled Gas Corp. of Vt., 161 Vt. 200, 635 A.2d 1211 (Vt. 1993)