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Chancery Denies Summary Judgment on Claim of Breach of Good Faith and Fair Dealing Due To Factual Issue Regarding Missed Deadline

By Francis G. X. Pileggi, Esq.

In Amirsaleh v. Board of Trade of New York City, Inc., 2008 WL 4182998 (Del. Ch., Sept. 11, 2008), the Chancery Court explored the contours and the content of the implied duty of good faith and fair dealing that is imposed on every contract governed by Delaware law. Here is a short summary of the prior Chancery Court decision in the case.

This is must reading for anyone interested in the latest explanation and amplification in Delaware of the all-important implied duty of good faith and fair dealing. The factual background involved the refusal to accept an election form after a deadline in connection with a merger--although other forms were accepted after the deadline for some involved in the merger.

The court's introductory paragraph includes a classic truism to the effect that even the most carefully drafted agreements cannot anticipate and address every potential issue that might arise in course of performing the terms of a deal. Thus, the crucial obligation of good faith can be a gap-filler. This duty is especially important, the Court emphasizes, when one party is given discretionary powers.

Specifically, the Court reasoned that:

"Simply  put, the implied covenant requires that the 'discretion-exercising party' make that decision in good faith". See footnote 47. See also footnotes 38 to 41.

 

The Court  also discussed third-party beneficiaries and the test for standing of such parties.

Full post as published by Delaware Corporate and Commercial Litigation Blog on September 21, 2008 (boomark / email).