On March 11, 2024, Justice Chan of the New York County Commercial Division issued a decision in Newage Garden Grove, LLC v Wells Fargo Bank, N.A., 2024 NY Slip Op. 30855(U), upholding a claim for the breach of the covenant of good faith and fair dealing based on an alleged refusal to engage in settlement negotiations, explaining:
In the July 2023 Order, the court dismissed Newage’s claim for breach of the implied covenant of good faith and fair dealing on the grounds that it was duplicative of its breach of contract claim. Newage accordingly has buttressed its implied covenant claim with additional factual allegations. Defendants now offer two independent bases for dismissal of Newage’s implied covenant claim. First, defendants contend that they had no duty to negotiate any modification or forbearance of the Loan Agreement, thereby precluding any basis to imply obligations to do so through the implied covenant of good faith and fair dealing. Second, responding to Newage’s contention that defendants unreasonably delayed providing a payoff statement to Newage, defendants contend that Newage waived any right to seek monetary damages for unreasonable delay under Section 10.12 of the Loan Agreement. Newage retorts that it has sufficiently alleged actions taken by defendants that were intended to frustrate its ability to cure or otherwise repay the loan. And addressing defendants’ contention that it waived its right to seek monetary damages, Newage avers that Section 10.12 should not be enforced considering defendants’ intentional misconduct.
Implicit in all contracts is a covenant of good faith and fair dealing in the course of contract performance. This embraces a pledge that neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract. Hence, to establish a claim for breach of the implied covenant of good faith and fair dealing, a plaintiff must allege that defendant sought to prevent performance of the contract or deprive plaintiff of the right to receive benefits under the agreement.Here, the focus of Newage’s implied covenant claim is that Rialto deliberately and unreasonably delayed (1) finalizing settlement terms and providing a written agreement reflecting those terms, and (2) providing Newage with the payoff statement needed to retire the Loan. Newage avers that it expected Rialto to negotiate in good faith and free of self-interest. But Rialto instead delayed and obfuscated the process in a manner that improperly induced Newage from acting more quickly to cure any default, repay the Loan, and mitigate damages. Rialto’s conduct, in turn, allowed for default interest and fees to accumulate against Newage. These allegations sufficiently establish conduct at the pleading stage that, although not expressly addressed or proscribed by the Loan Agreement, essentially frustrated Newage’s ability to perform under the Loan Agreement and violated Newage’s reasonable expectations arising thereunder. And unlike the circumstances supporting the implied covenant claim in the original complaint, the circumstances alleged in the F AC do not arise out of the same set of facts as Newage’s breach of contract claim.
This conclusion is not altered by the fact the Loan Agreement prohibits “modification, amendment, extension, discharge, termination or waiver” of any of its provisions without written consent. Nor is it relevant, as defendants aver, that the implied covenant of good faith and fair dealing does not typically “encompass future dealings or negotiations between the parties. As alleged, Newage’s claim is not premised on whether defendants did or did not modify the Loan Agreement or discharge Newage’s duties to perform. It instead stems from defendants’ alleged stonewalling and delay during the negotiation process, which prevented Newage from exercising its and rights and options under the Loan Agreement, including the possibility of changing course in time to avoid accruing additional fees and interest. That the Loan Agreement could not be modified or amended without Lender’s consent is therefore of no moment here.
Defendants otherwise argue that Newage’s implied covenant claim is foreclosed by Section 10.12 of the Loan Agreement, which (1) limits Newage’s remedies for any claim that Lender or Rialto acted unreasonably or unreasonably delayed acting” to “injunctive relief or declaratory judgment, and (2) expressly states that neither Lender nor its agents shall be liable for any monetary damages. The court disagrees.
It is true that New York courts routinely enforce such liability· limitation provisions, especially when negotiated by sophisticated parties. Such clauses, however, are unenforceable when “in contravention of acceptable notions of morality, the misconduct for which it would grant immunity smacks of intentional wrongdoing or bad faith. The type of intentional wrongdoing that could render a contractual liability limitation unenforceable is that which is unrelated to any legitimate economic self-interest. Here, accepting the allegations in the F AC as true and drawing all reasonable inferences in Newage’s favor (as this court must), there are sufficient facts alleged to support a pleading-stage inference that Rialto’s actions were unrelated to any legitimate economic self-interest and purposefully calculated to delay Newage from exercising its rights and options under the Loan Agreement. For this reason, although Section 10.12 may ultimately prove to be an issue for Newage down the line, it does not warrant dismissal of this claim at this early juncture.
In sum, Newage has sufficiently stated a non-duplicative claim for breach of the implied covenant of good faith and fair dealing in its FAC. Defendants’ motion to dismiss Count II of the F AC is denied.
(Internal quotations and citations omitted).