Opinion ID: 2319183
Heading Depth: 2
Heading Rank: 2

Heading: the vice chancellor erroneously dismissed cmc's implied covenant of good faith and fair dealing claim.

Text: The Vice Chancellor dismissed CMC's claim that Morgan Stanley breached the implied covenant of good faith and fair dealing on the basis that the factual basis for the claim was the same as, and was therefore subsumed by, CMC's breach of contract claims. [19] CMC pleaded various additional facts, however, that provide a separate basis for its implied covenant of good faith and fair dealing claim. Therefore, the claim should not have been dismissed. New York law implies an obligation of good faith and fair dealing into all contracts. [20] New York's implied covenant requires that no party to [a] contract... do anything which will destroy or injure the right of another party to receive the benefits of the contract. [21] A party may breach the implied covenant even if it is not in breach of the underlying contract. [22] Importantly for this case, under New York law a party may maintain a claim for breach of the implied covenant of good faith and fair dealing only if the factual allegations underlying the implied covenant claim differ from those underlying an accompanying breach of contract claim. [23] Thus, where a claim for breach of the implied covenant is duplicative of a breach of contract claim, the implied covenant claim is subject to dismissal. [24] On the other hand, when a claim for breach of the implied covenant depends on facts apart from those that might support a breach of contract claim, then the claim is not duplicative and is not subject to dismissal. [25] In this case, CMC pleaded two separate breach of contract claims in addition to its claim that Morgan Stanley breached the implied covenant of good faith and fair dealing. The essence of its first breach of contract claim is simple. As CMC explained in Paragraph 97 of its Complaint: Morgan Stanley has materially breached the contract by selling the servicing of nearly fifty (so-far-confirmed) non-Agency mortgages. In other words, in its first breach of contract claim, CMC pleaded that (1) the contract required Morgan Stanley to sell CMC only Agency mortgages, and (2) Morgan Stanley failed to perform that obligation. The essence of its second breach of contract claim is also simple. As CMC explained in Paragraph 108 of its Complaint: Morgan Stanley [made] multiple independent breaches of its representations and warranties, including without limitation its failure to provide true, complete, and accurate information regarding the loans.... In other words, in its second breach of contract claim, CMC pleaded that (1) Morgan Stanley represented and warranted in the contract that it would perform various obligations, including providing true, complete, and accurate information regarding the loans, and (2) Morgan Stanley failed to perform that which it represented it would do. In its claim for breach of the implied covenant, CMC does not allege that merely because Morgan Stanley breached the terms of its agreements with CMC it therefore also breached the implied covenant. [26] Instead, CMC relevantly alleges in Paragraph 123 of its Complaint: [Morgan Stanley's] actions have impeded [CMC's] right to receive the benefits that [CMC] reasonably expected under the contract. In other words, CMC alleges that Morgan Stanley violated the implied covenant by depriv[ing] [CMC] of the benefit of its bargain. [27] That is a different claim from the two breach of contract claims. A different factual basis supports that claim in CMC's pleadings. Elsewhere in its Complaint, CMC alleges that Morgan Stanley (1) had courted CMC by inviting CMC to tour its due diligence facility in Boca Raton, Florida, (2) told CMC that it had hired a company known for mortgage due diligence to review each loan file to make sure it satisfied applicable Agency underwriting criteria, and (3) eventually disclosed to CMC that it had not performed the promised due diligence on the first batch of loans for which CMC purchased servicing rights. [28] These factual allegations adequately provide the basis for CMC's implied covenant claim that Morgan Stanley engaged in a bait and switch by inducing CMC to buy servicing rights to its detriment. Critically, these facts do not support either of CMC's breach of contract claims. With respect to its first breach of contract claimthat Morgan Stanley breached the contract by selling servicing rights on non-Agency mortgagesCMC nowhere alleges that the contract required Morgan Stanley to conduct certain due diligence on the mortgages. As for its second breach of contract claimthat Morgan Stanley breached its representations and warranties including its promise to provide true, complete, and accurate information about the loansCMC also does not plead that the representations and warranties required specific due diligence. Indeed, the Master Agreement contained no representation or warranty by Morgan Stanley that it would perform due diligencemuch less of a specific type or at a specific facilityon the loans. To be sure, Morgan Stanley represented and warranted that it would provide CMC with information related to the mortgage loans that is true, complete, and accurate in all material respects. For Morgan Stanley to promise to give CMC true, complete, and accurate information is different, however, than for it to promise to perform a certain specific kind of due diligence. Morgan Stanley made the former promise in the contracta promise that serves as part of the basis for CMC's second breach of contract claim. CMC alleges that Morgan Stanley made the latter promise outside the contracta fact that serves as part of the basis for CMC's claim for breach of the implied covenant. Because the claims are not duplicative, the Vice Chancellor erroneously dismissed CMC's claim for breach of the implied covenant on that basis. We do not address whether CMC's pleading with respect to the implied covenant could survive summary judgment or prevail at trial. We hold only that CMC's implied covenant claim is sufficiently distinct from its breach of contract claims and sufficiently well pleaded to survive Morgan Stanley's Motion to Dismiss.