Dalton v. Educational Testing Service
663 N.E.2d 289 (1995)
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Rule of Law:
The implied covenant of good faith and fair dealing requires a party vested with contractual discretion, such as a standardized testing service's right to cancel scores, to exercise that discretion by genuinely considering relevant information submitted by the other party pursuant to the contract's explicit options.
Facts:
- In May 1991, Brian Dalton took the Scholastic Aptitude Test (SAT) as a high school junior.
- Six months later, in November 1991, Dalton took the SAT again and his combined score increased by 410 points.
- This large score increase triggered a review by the test administrator, Educational Testing Service (ETS), whose handwriting expert concluded that the May and November answer sheets were completed by different individuals.
- ETS informed Dalton of its preliminary decision to cancel his November score on the grounds that someone else may have completed his answer sheet.
- Exercising an option provided in his registration agreement with ETS, Dalton submitted additional information to support his score's validity.
- Dalton's submission included medical verification of his mononucleosis during the first exam, diagnostic test results from a preparatory course showing his improved ability, statements from a proctor and students confirming his presence at the second exam, and a report from his own handwriting expert concluding he completed both exams.
- After having a second internal document examiner confirm the handwriting disparity, ETS continued to question the validity of Dalton's score.
Procedural Posture:
- Peter Dalton, on behalf of his son Brian Dalton, sued Educational Testing Service (ETS) in a New York trial court, initially as a CPLR article 78 proceeding that was converted into an action at law.
- The plaintiff sought an order to prohibit ETS from cancelling the November SAT score and to compel its immediate release.
- After a nonjury trial, the trial court found that ETS had breached its contract by failing to act in good faith and ordered ETS to release the score.
- ETS, as appellant, appealed to the Appellate Division.
- The Appellate Division affirmed the trial court's judgment, finding that ETS's failure to evaluate Dalton's evidence constituted a breach of contract.
- ETS, as appellant, was granted leave to appeal to the Court of Appeals of New York, the state's highest court.
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Issue:
Does a standardized testing service breach the implied covenant of good faith and fair dealing when, after questioning a test score's validity, it fails to consider relevant evidence submitted by a test-taker pursuant to a contractual option to do so?
Opinions:
Majority - Chief Judge Kaye
Yes. A standardized testing service breaches the implied covenant of good faith and fair dealing when it fails to consider relevant evidence submitted by a test-taker. The contract between Dalton and ETS contained an implied covenant of good faith and fair dealing, which requires that a party with discretion not act arbitrarily or irrationally. By offering Dalton the option to submit additional information, ETS created an implied obligation to, at a minimum, consider any relevant material he submitted. Dalton's evidence regarding his presence at the exam, his medical condition during the first exam, and his preparatory course scores was relevant to the impersonation question raised by ETS. The lower courts' affirmed factual finding, which is binding on this court, was that ETS Board of Review members admitted they considered Dalton's presence at the exam to be irrelevant and a 'non-issue.' This failure to exercise its discretion by refusing to even consider relevant evidence constituted a breach of contract. However, the appropriate remedy is not to order the release of the score, but specific performance of the contract—requiring ETS to now engage in a good-faith consideration of Dalton's submitted materials.
Dissenting - Judge Levine
No. A standardized testing service does not breach the implied covenant of good faith and fair dealing when it has a rational basis for questioning a score and deems the test-taker's evidence irrelevant to its primary concern. The implied covenant only prevents arbitrary or irrational action. ETS had a non-arbitrary basis for its doubts: two handwriting experts concluded the answer sheets were filled out by different people. The Board of Review members did not fail to consider Dalton's evidence; rather, they considered it and rationally found it irrelevant to explaining the dispositive issue of the disparate handwriting. The majority improperly substitutes its own judgment for that of ETS regarding the relevance of the evidence. ETS acted within its contractual discretion, and there is no evidence that it acted arbitrarily or irrationally.
Analysis:
This decision reinforces the principle that the implied covenant of good faith and fair dealing imposes meaningful constraints on discretionary powers granted in a contract, especially in contracts of adhesion. It clarifies that offering a procedural option, such as submitting evidence, creates a substantive duty to engage with that procedure in good faith. The case distinguishes between a bad-faith refusal to consider information and a good-faith determination that information is unpersuasive, holding the former to be a breach. The court's choice of remedy—specific performance of the review process rather than ordering the score's release—highlights judicial deference to the specialized functions of institutions like ETS, while still enforcing contractual rights.
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