In New York Law Journal, Gregg Weiner, Andrew Todres and Ethan Fitzgerald Discuss New York Court of Appeals Ruling on Contractual Discretion

In a recent article in New York Law Journal, Gregg Weiner, co-chair of the global litigation & enforcement practice group, Andrew Todres, litigation & enforcement partner, and Ethan Fitzgerald, litigation & enforcement associate, examined a New York Court of Appeals decision that creates significant uncertainty over foundational New York contract law and the scope of contractual rights granting parties “sole discretion” over business matters.

The authors detail how, in a 4-3 ruling involving a Manhattan "supertall" residential development, the court allowed a breach of contract claim—for breach of the implied covenant of good faith and fair dealing—to proceed against a lender in relation to a loan assignment despite a pledge agreement granting it "sole discretion" over loan assignments. They note the dissent's warning that the ruling injects uncertainty into New York contract law—long relied on by commercial parties for its stability—and may affect parties' choice-of-law decisions. The authors advise that discretionary rights, even when labeled "sole" or "absolute," should be exercised cautiously going forward.