Judge Koeltl’s opinion in First American Intern. Bank v. The Community’s Bank (S.D.N.Y.) presents an interesting example of a claim for breach of the implied covenant of good faith and fair dealing. Since the implied covenant of good faith occasionally serves as a “Hail Mary” for litigants who can’t identify a more conventional contract claim, it’s useful to see a proper use of it, put simply.
Plaintiff and Defendant are banks that entered into a series of Letter Agreements that required the Defendant to share 50% of a federal community development award if doing so was “permitted under all applicable laws, rules and regulations.” Defendant got the award, but refused to share it with Plaintiff, claiming that sharing was not permitted by the applicable federal rules. The parties, separately and together, petitioned the granting agency to determine whether sharing was allowed. The Plaintiff sued for breach of contract, and claimed that Defendant’s communications to the agency “colored the facts” and were not designed to obtain an impartial response. Defendant’s motion to dismiss was denied by Judge Koeltl as follows:
“[Plaintiff] has plainly stated a claim for violation of the implied covenant of good faith and fair dealing that is sufficient to survive a motion to dismiss. The complaint, particularly when read together with the parties’ post-filing correspondence, allows the reasonable inference that [Defendant] has sought to obtain [the granting agency’s] denial of consent in an attempt to relieve [Defendant] from its obligation under the Letter Agreements, which would ‘have the effect of destroying or injuring the right of the other party to receive the fruits of the contract.’”
Furthermore, according to Judge Koeltl, “’an alleged breach of the implied covenant of good faith and fair dealing is part of a general breach of contract claim,’ and therefore need not be pleaded separately.”