Court Grants Motion To Dismiss Breach Of Implied Covenant Of Good Faith And Fair Dealing Claim

On July 10, 2024, Justice Andrea Masley issued a Decision and Order in SC Philips Clark LLC v. Shore Club Property Owner LLC, Index No. 652489/2022, granting, in part, Defendants’ motion to dismiss. Plaintiff brought several claims alleging that defendants usurped plaintiff’s interest in the Shore Club Hotel and adjoining beachfront property, located in Miami Beach, Florida. The Court dismissed, inter alia, plaintiff’s cause of action for breach of the implied covenant of good faith and fair dealing. The Court explained:

Every contract contains an implied covenant of good faith and fair dealing. (Forman v Guardian Life Ins. Co. of Am., 76 AD3d 886, 888 [1st Dept 2010].) "This covenant 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." (511 W. 232nd Owners Corp. v Jennifer Realty Co., 98 NY2d 144, 153 [2002] [internal quotation marks and citation omitted].) To survive a motion to dismiss, plaintiffs must allege facts demonstrating that defendants sought to prevent performance of the agreement or withhold its benefits from plaintiffs. (See Jaffe v Paramount Communications, 222 AD2d 17, 22-23 [1st Dept 1996].) "[P]laintiffs cannot use this claim to nullify other express terms of a contract, or to create independent contractual rights." (87 Mezz Member LLC v German Am. Capital Corp., 162 AD3d 524, 525 [1st Dept 2018] [internal citations and quotation marks omitted].)

Here, plaintiff fails to state a claim for breach of the implied covenant of good faith and fair dealing. Just as with the breach of contract claim, there is a dearth of factual allegations that Owner did anything to deprive plaintiff of its rights under the [Profit Participation Agreement]. The crux of plaintiff's claim is that "the Shore Club Entities, including Owner, abetted Monroe's and Witkoff's scheme to swipe Philips's interests in the Property by enabling a series of secret, related-party deals that left Holdings an assetless shell." (NYSCEF 26, Plaintiff's Brief In Opposition at 12.) However, plaintiff's conclusory allegations that Owner "permitted" or "enabled" such conduct (NYSCEF 2, Complaint, ¶¶ 82, 86) are insufficient to support the claim. (See Phoenix Capital lnvs. LLC v Ellington Mgt. Group, LLC, 51 AD3d 549, 550 [1st Dept 2008] [stating that plaintiff's allegation, "that defendant contrived with [another entity] ... so as to avoid paying plaintiff its fee," was conclusory]; see also Jaffe, 222 AD2d at 23 [affirming dismissal of the claim, where plaintiff failed to allege "facts to demonstrate that (the defendant) deprived him of any rights he had under the Agreement"].)

The attorneys at Schlam Stone & Dolan frequently litigate issues relating the implied covenant of good faith and fair dealing. Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning such issues.