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Posted: February 21, 2017

Failure to Agree Does Not Violate Obligation in Term Sheet to Negotiate in Good Faith

On February 10, 2017, Justice Kornreich of the New York County Commercial Division issued a decision in GE Oil & Gas, Inc. v. Turbine Generation Services, L.L.C., 2017 NY Slip Op. 30275(U), holding that the failure to come to an agreement does not, by itself, establish a violation of an obligation to negotiate in good faith, explaining:

The TGS Parties have now pleaded a claim for breach of the GE Parties’ good faith negotiation obligations. They do not, however, explain how the GE Parties failed to negotiate in good faith or what they actually did that amounts to bad faith, other than claiming that the GE Parties repeatedly assured the TGS Parties that the proposed venture would go forward. Then, “on or about September 29, 2013, Moreno was informed that GE was not ‘comfortable’ about participating in the joint venture.” The TGS Parties admit that GE informed it that “Green Field’s ‘financial situation’ was the reason.” Indeed, Green Field filed for bankruptcy on October 27, 2013. It was only afterward that the GE Parties demanded repayment of the $25 million due on the Note and Guaranty.

The TGS Parties suggest that the Greenfield excuse was pretextual and that the GE Parties never intended to invest more than the first $25 million (this claim, as discussed below, also forms the basis of a fraudulent inducement claim). However, they do not allege any facts that permit a reasonable inference that the GE Parties acted in bad faith. The fact that the TGS Parties ultimately did not go forward with the joint venture after conveying a willingness to further invest, standing alone, is not sufficient to infer bad faith. The obligation to negotiate in good faith can come to an end without a breach by either party because not every good faith negotiation bears fruit. As discussed more fully below with respect to the fraud claim, the TGS Parties do not plead any non-conclusory allegations about the GE Parties supposedly lying about their intention to further invest (either before the Note was executed or afterward).

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

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