On February 24, 2022, the First Department issued a decision in Parlux Fragrances, LLC v. S. Carter Enters., LLC, 2022 NY Slip Op 01250, holding that the covenant of good faith and fair dealing applies where a party has discretion in how it performs a contractual duty, explaining:
The implied covenant of good faith and fair dealing embraces a pledge that neither party shall do anything that will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract, and is breached when a party acts in a manner that deprives the other party of the benefits of the contract. Generally, a breach of the covenant of good faith and fair dealing is a breach of the contract itself. Therefore, a separate cause of action for breach of the covenant cannot be maintained where, as here, it is premised on the same conduct that underlies the breach of contract cause of action and is intrinsically tied to the damages allegedly resulting from a breach of the contract. Because a breach of the covenant of good faith and fair dealing is a breach of the contract itself, plaintiffs may press their theory that defendants acted in derogation of the covenant in conjunction with their cause of action for breach of the license agreements. We note that to the extent defendants were entitled to exercise discretion in the manner in which they performed their obligations under articles 7 and 11, they were, under the covenant (and, by natural extension, under the license agreement itself) prohibited from acting arbitrarily, irrationally, or in bad faith.
(Internal quotations and citations omitted) (emphasis added).