In New York Law Journal, Litigation Team Examines Implied Covenant as Applied to Discretionary Contractual Rights

In The News
April 11, 2024

In an article for New York Law Journal, co-chair of the firm's litigation and enforcement practice group Gregg Weiner, and associates Andrew Todres and Mohammed Hassan provide new insight into the limits on a party’s ability to exercise “sole discretion” granted to it under a Delaware or New York law contract, and explore the evolving and fairly undefined contours of the implied covenant (as applied to discretionary contractual rights) through the lens of recent cases.

“Historically, Delaware and New York courts have generally held that it is not a violation of the implied covenant of good faith and fair dealing for a party to exercise a contractual, discretionary right out of economic self-interest, even to the detriment of a counterparty, provided that the decision taken is not arbitrary or irrational. But that is not the end of the inquiry,” said the team. “Courts in both Delaware and New York have delved further, to more closely evaluate business managers’ underlying motivations for discretionary decisions, even ones with perfectly rational business justifications.”

Gregg, Andrew, and Mohammed offer practical guidance and strategies on how to execute potentially contentious business decisions without running afoul of the implied covenant or, conversely, how to build a record to bring an implied covenant claim in respect of such a decision.