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Current Developments in the Commercial Divisions of the
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Posted: September 9, 2014

Claim for Breach of Covenant of Good Faith and Fair Dealing Duplicative When it Arises from Same Operative Facts as Contract Claim

On September 4, 2014, the First Department issued a decision in Mill Financial, LLC v. Gillett, 2014 NY Slip Op. 06039, holding that a claim for breach of the covenant of good faith and fair dealing is duplicative of a breach of contract claim when both claims arise from the same operative facts.

In Mill Financial, a dispute over commercial loans, the trial court denied a defendant’s motion to dismiss. On appeal, the First Department reversed the portion of┬áthe trial court’s decision that refused to dismiss the plaintiffs’ “claim for breach of the covenant of good faith and fair dealing” as “duplicative of the breach of contract claim,” explaining:

Where a good faith claim arises from the same facts and seeks the same damages as a breach of contract claim, it should be dismissed. [The plaintiff] argues that the failure to give notice was the breach of contract, and the taking control and sale of the Club is the conduct giving rise to the good faith claim. However, as noted, the only damages flowing from the alleged failure to give notice are from the sale of the Club. The whole theory of the breach of contract action was that [the plaintiff] was prevented from taking steps to protect its collateral, i.e., stopping the sale of the Club. The conduct alleged in the two causes of action need not be identical in every respect. It is enough that they arise from the same operative facts.

(Internal quotations and citations omitted) (emphasis added).

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