On October 5, 2023, the First Department issued a decision in 111 W. 57th Inv. LLC v. 111 W57 Mezz Inv. LLC, 2023 NY Slip Op. 05029, holding that a defendant that had the sole discretion to take an action could not be held liable for breaching the covenant of good faith and fair dealing for doing so, explaining:
The covenant of good faith and fair dealing 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. However, the implied duty of good faith and fair dealing does not imply obligations inconsistent with other terms of the contractual relationship. As this Court has explained, where a contract allows one party to exercise a contractual right in its sole discretion and for any reason whatsoever the covenant of good faith and fair dealing cannot serve to negate that provision.
As the motion court found, the Apollo Lenders had the right to assign the Junior Mezzanine Loan. The relevant loan agreement and pledge agreement, when read together, conferred considerable discretion to the Apollo Lenders. Because Apollo had the absolute right to assign the Pledge Agreement in its sole discretion under the loan documents, there can be no implied covenant claim against them.
(Internal quotations and citations omitted).