On April 21, 2022, Justice Reed of the New York County Commercial Division issued a decision in Anexia, Inc. v. Horizon Data Solutions Ctr., LLC, 2022 NY Slip Op. 50320(U), upholding a stand-alone claim for breach of the covenant of good faith and fair dealing, explaining:
Anexia argues New York does not recognize a good faith and fair dealing claim as an independent cause of action. VAZATA argues that there are circumstances where New York recognizes good faith and fair dealing as an independent claim and that this is one of those circumstances.
New York courts have repeatedly affirmed that a party may be in breach of an implied duty of good faith and fair dealing, even if it is not in breach of its express contractual obligations, when it exercises a contractual right as part of a scheme to realize gains that the contract implicitly denied or to deprive the other party of the fruit of its bargain.
The First Department in Maddaloni Jewelers, Inc. v. Rolex Watch U.S.A., Inc. confirmed the principle that a claim for breach of the implied covenant of good faith and fair dealing can occasionally stand on its own. In Maddaloni, the defendant had moved on summary judgment to dismiss the plaintiff’s third amended complaint, which alleged a cause of action for breach of an implied duty of good faith and fair dealing but did not assert a cause of action for breach of contract. The First Department sustained the cause of action for breach of an implied duty of good faith and fair dealing. The Court found that, although the parties’ contract permitted the defendant to accept plaintiff’s orders and time its deliveries at its discretion, the plaintiff’s allegations had raised a triable issue of fact as to whether the defendant’s discretion under the contract was exercised in bad faith. Maddaloni makes it clear that a plaintiff may bring a cause of action for breach of the implied covenant of good faith and fair dealing alleging that a defendant has exercised its rights under its contract in bad faith in order to realize gains that the contract implicitly denied or to deprive the other party of the fruit of its bargain, even if the plaintiff has not alleged a breach of that contract.
Most of the decisions that appear to reach a contrary result rely on the oft-cited rule that a claim for breach of an implied duty of good faith and fair dealing cannot stand alone if it only substitutes for a nonviable breach of contract claim. This rule does not bar VAZATA’s good faith counterclaim, where VAZATA alleges that Anexia acted in bad faith as part of scheme to deprive it of the benefit of its bargain.
In Richbell, the First Department acknowledged the tension between, on the one hand, the imposition of a good faith limitation on the exercise of a contract right and, on the other, the avoidance of using the implied covenant of good faith to create new duties that negate explicit rights under a contract. But notwithstanding this tension, it upheld the plaintiffs’ cause of action for breach of implied covenant of good faith and fair dealing, alleging that the defendant had exercised its contractual right malevolently, for its own gain, as part of a purposeful scheme designed to deprive the plaintiffs of the benefits of their contract. Such a claim does not create new duties that negate the party’s explicit rights under a contract, but rather, seeks imposition of an entirely proper duty to eschew this type of bad faith targeted malevolence in the guise of business dealings.
In such circumstances, the claim for breach of an implied duty of good faith and fair dealing does not depend on a breach of the contract; therefore, a party may bring such a claim, whether or not there is a viable breach of contract claim.
(Internal quotations and citations omitted) (emphasis added).