111 West 57th Investment LLC v. 111 W57 Mezz Investor LLC

What the court decided

"[A] party's 'sole discretion' with respect to a right does not exculpate that party from complying with the implied covenant" of good faith and fair dealing "with respect to that right." Where a contract contemplates discretion, the covenant includes a promise not to exercise it arbitrarily, irrationally or in bad faith to destroy the other party's right to the fruits of the contract; "a restriction on who is not a restriction on how." The Court left untouched the rule that sole discretion to terminate a contract is immune from the covenant, and said the terms of a grant of discretion still shape the scope of the implied duty.

Who won

The equity investor won at the pleading stage, 4-3: its implied-covenant claim against the lender was reinstated and sent back to the trial court. Dismissal of its tortious interference claims was affirmed.

Why it matters for salespeople

A commercial loan case, not an employment case, and no court has yet applied it to pay. But it confirms that a plan reserving "sole discretion" over compensation does not license bad-faith use of that discretion, and it resolves the doubt Hunter expressed.

Key passage: 2026 N.Y. Slip Op. 03376 at *3-*5.

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