The Banking Law Journal VOLUME 129

NUMBER 6

JUNE 2012

HEADNOTE: LENDERS’ EXERCISE OF “SOLE DISCRETION” Steven A. Meyerowitz

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GOOD FAITH AND LENDERS’ EXERCISE OF CONTRACTUAL “SOLE DISCRETION” Thomas J. Hall and Stacey Trimmer

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BANK REGULATORS TACKLE LEVERAGED LENDING Derrick D. Cephas, Heath P. Tarbert, and Dimia E. Fogam

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FSA: BANKS HAVE “MORE WORK TO DO” ON ANTI-BRIBERY COMPLIANCE Robert Plotkin, Vivian Robinson, Adam Greaves and Kurt E. Wolfe

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FINANCIAL AND TRADE SANCTIONS: WHAT BANKS NEED TO KNOW Peter Burrell, Rita Mitchell, and David Savell

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DELAWARE COURT BLOCKS SALE OF BANK STRIPPED OF ITS “CRITICIZED ASSETS” Robert S. Reder, David Schwartz, and Julie Constantinides

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IMPLICATIONS OF THE CFPB’S FIRST ANNUAL REPORT REGARDING THE FAIR DEBT COLLECTION PRACTICES ACT Robert E. Bostrom, Gary L. Goldberg, Stephen F.J. Ornstein, Scott D. Samlin, and Jennifer Maree

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REVISITING THE LENDER’S RECOVERY TOOLBOX: REMEDIES OF SETOFF AND RECOUPMENT Kelly E. Waits

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A TROUBLING BANK BALANCE — COMPETING DUTIES FOR BANKS WHEN MAKING SUSPICIOUS ACTIVITY REPORTS Peter Burrell, Rita Mitchell, and David Savell

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LANDMARK GERMAN BANKRUPTCY REFORM LAW CREATES OPPORTUNITIES FOR STAKEHOLDERS Bernd Meyer-Löwy, Leo Plank, Carl Pickerill, and Florian Bruder

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COMMUNITY BANKS: 12 STRATEGIES FOR RAISING CAPITAL IN A CAPITAL POOR ENVIRONMENT Victoria Pool

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BANKING BRIEFS Terence G. Banich

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EDITOR-IN-CHIEF Steven A. Meyerowitz President, Meyerowitz Communications Inc. BOARD OF EDITORS Paul Barron Professor of Law Tulane Univ. School of Law George Brandon Partner, Squire, Sanders & Dempsey LLP

Mark Alan Kantor Washington, D.C.

Stephen B. Weissman Partner, Rivkin Radler LLP

Satish M. Kini Partner, Debevoise & Plimpton LLP

Elizabeth C. Yen Partner, Hudson Cook, LLP

Douglas Landy Partner, Allen & Overy LLP

Bankruptcy for Bankers Howard Seife Partner, Chadbourne & Parke LLP

Barkley Clark Partner, Stinson Morrison Hecker LLP

Paul L. Lee Partner, Debevoise & Plimpton LLP

John F. Dolan Professor of Law Wayne State Univ. Law School

Jonathan R. Macey Professor of Law Yale Law School

Stephanie E. Kalahurka Hunton & Williams, LLP

Martin Mayer The Brookings Institution

Thomas J. Hall Partner, Chadbourne & Parke LLP

Julia B. Strickland Partner, Stroock & Stroock & Lavan LLP

Michael Hogan Ashelford Management Serv. Ltd. Kirk D. Jensen Partner, BuckleySandler LLP

Heath P. Tarbert Partner, Weil, Gotshal & Manges LLP Marshall E. Tracht Professor of Law New York Law School

Regional Banking Outlook James F. Bauerle Keevican Weiss Bauerle & Hirsch LLC Recapitalizations Christopher J. Zinski Partner, Schiff Hardin LLP Banking Briefs Terence G. Banich Member, Shaw Gussis Fishman Glantz Wolfson & Towbin LLC Intellectual Property Stephen T. Schreiner Partner, Goodwin Procter LLP

The Banking Law Journal (ISSN 0005 5506) (USPS 003-160) is published ten times a year by A.S. Pratt & Sons, 805 Fifteenth Street, NW., Third Floor, Washington, DC 20005-2207. Periodicals Postage Paid at Washington, D.C., and at additional mailing offices. Copyright © 2012 THOMPSON MEDIA GROUP LLC. All rights reserved. No part of this journal may be reproduced in any form —   by microfilm, xerography, or otherwise —   or incorporated into any information retrieval system without the written permission of the copyright owner. Requests to reproduce material contained in this publication should be addressed to A.S. Pratt & Sons, 805 Fifteenth Street, NW., Third Floor, Washington, DC 20005-2207, fax: 703-528-1736. For subscription information and customer service, call 1-800-572-2797. Direct any editorial inquires and send any material for publication to Steven A. Meyerowitz, Editor-in-Chief, Meyerowitz Communications Inc., PO Box 7080, Miller Place, NY 11764, smeyerow@optonline. net, 631.331.3908 (phone) / 631.331.3664 (fax). Material for publication is welcomed —   articles, decisions, or other items of interest to bankers, officers of financial institutions, and their attorneys. This publication is designed to be accurate and authoritative, but neither the publisher nor the authors are rendering legal, accounting, or other professional services in this publication. If legal or other expert advice is desired, retain the services of an appropriate professional. The articles and columns reflect only the present considerations and views of the authors and do not necessarily reflect those of the firms or organizations with which they are affiliated, any of the former or present clients of the authors or their firms or organizations, or the editors or publisher. POSTMASTER: Send address changes to The Banking Law Journal, A.S. Pratt & Sons, 805 Fifteenth Street, NW., Third Floor, Washington, DC 20005-2207.

Good Faith and Lenders’ Exercise of Contractual “Sole Discretion” THOMAS J. HALL AND STACEY TRIMMER

The authors explain that the extent of a lender’s sole discretion varies depending on the express contractual terms, the parties’ expectations, and whether the lender has truly acted in bad faith — with one possible exception in the context of a lender’s right to terminate or refuse to extend a loan; in that situation, the authors conclude, courts seem far less willing to find that the implied duty of good faith constrains a lender’s express right to terminate or to refuse to extend.

L

oan agreements frequently give a lender the right to determine in its sole discretion whether the performance of a borrower satisfies a requirement in the agreement. As loan agreements often place no express limits on the exercise of that discretion, does common law do so? A number of courts have interpreted the exercise of such discretion in light of the implied covenant of good faith and fair dealing, finding that common law imposes an obligation to exercise discretion in good faith. Other decisions use the good faith principle to impose an implied reasonableness requirement on the exercise of that discretion and to limit a lender’s discretion based on the parties’ expectations at the time the loan agreement was executed. Notably, however, in the context of analyzing a lender’s contractual right to terminate or refuse to extend a loan obligation, many courts appear less willing to allow any good faith obligation to interfere with such contractual rights, even going so far as finding that there is no enforceable expectaThomas J. Hall, a member of the board of editors of The Banking Law Journal, is a litigation partner with Chadbourne & Parke LLP and is co-chair of its Commercial Litigation Practice. Stacey Trimmer is a litigation associate with the firm. They can be reached at [email protected] and [email protected].

483 Published by A.S. Pratt in the June 2012 issue of The Banking Law Journal. Copyright © 2012 THOMPSON MEDIA GROUP LLC. 1-800-572-2797.

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tion that a counter-party will exercise its discretion to terminate or refuse to extend in good faith.1 We explore these decisions in more detail below.

GOOD FAITH STANDARD Judicial modulation of the exercise of sole and absolute discretion typically finds its roots in the implied covenant of good faith and fair dealing. For example, in 55 Eckford Realty LLC v. Bank of East Asia (U.S.A.) N.A., a New York trial court held that, despite a lender’s contractual right of “sole and absolute discretion,” the implied covenant of good faith and fair dealing prevented the lender from effectively imposing requirements on the borrowers not expressed in the contract.2 In 55 Eckford, the plaintiffs applied for a loan from the defendant bank to finance construction of a building.3 The bank issued a commitment letter obligating the plaintiffs to deliver 27 due diligence items in advance of closing, all of which were to be in form and substance satisfactory to the bank. The commitment letter provided that the bank’s obligation to close was “conditioned upon the completion by [the bank] and its counsel of such due diligence investigations…as [the bank] and its counsel shall deem appropriate.”4 In addition, the commitment letter provided that any right given to the bank to approve or disapprove or to make any other decision or determination “shall be in the sole and absolute discretion of the bank.”5 The commitment letter provided that the bank was to obtain an appraisal of the property.6 The bank allegedly put the completion of that appraisal on hold pending receipt from plaintiffs of Department of Health approval of the intended use of a portion of the premises as a day care center.7 The plaintiffs responded that the Department of Health issues day care center licenses only following the completion of construction, that the use of the premises as a day care center was permitted under zoning laws, and that, in any event, nothing in the commitment letter obligated the plaintiffs to obtain and provide approval of a day care center.8 Relying on its right under the commitment letter to condition closing on the receipt of other information and documentation as it, in its sole and absolute discretion, deemed appropriate, the bank refused to close and sent a letter informing the plaintiffs that the loan commitment had expired, stating: 484

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because [the bank] did not learn for some time after the commitment letter was signed and returned to it that the community facility portion of the Project would be used as a day care center and because of regulatory and approval issues concerning such use, [the bank] was not able to complete the required due diligence and therefore was not able to close the loan before…the latest closing date as specified in [the commitment] letter.9

The plaintiffs filed suit for specific performance and damages alleging breach of the loan commitment because plaintiffs had complied with all of their express closing requirements and had requested a closing date from the bank for two weeks without a response, but the bank’s appraiser had informed plaintiffs that the bank had “put everything on hold.”10 The bank moved for summary judgment, arguing that the plaintiffs had failed to satisfy the closing condition of providing approved architectural plans for the building after determining to use the space for a day care center.11 The court agreed with plaintiffs that Health Department approval of the day care center “could not have been obtained until after the building was constructed and a certificate of occupancy was issued.”12 The court rejected the bank’s argument that it had unfettered discretion to accept or approve plaintiffs’ submissions and to demand additional information because “where a contract ‘contemplates the exercise of discretion, this pledge includes a promise not to act arbitrarily or irrationally in exercising that discretion.’”13 The court found that the covenant of good faith and fair dealing implied in every contract prevented the bank from using its discretion “to make any demand it wanted upon plaintiffs, even to the extent of effectively terminating its own obligation to loan the funds in spite of plaintiffs’ attempts to comply.”14 Thus, the bank did not have the right deliberately to “not obtain an appraisal of the property prior to the expiration of the commitment.”15 As a result of the legal arguments and related factual issues raised, the court denied the bank’s motion for summary judgment.16 Notably, the court also found that the commitment letter was a contract of adhesion as the bank had drafted it, and therefore construed its language against the bank.17 In CFBP, LLC v. Wells Fargo Bank, N.A., a Florida district court denied a motion to dismiss a borrower’s claims for breach of contract and breach of implied covenant of good faith and fair dealing.18 The borrower brought that

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action alleging that the lender wrongfully retained insurance proceeds after a fire occurred at property that was subject to a Mortgage and Security Agreement between the parties.19 That agreement provided that grants, assignments and transfers to the lender would secure payment of the debt and other obligations “in such order of priority as Lender may determine in its sole discretion” and the “purchase money, proceeds and avails of any disposition of the Property…may be applied by Lender to the payment of the Debt in such priority and proportions as Lender in its discretion shall deem proper.”20 Based on these terms and others, the lender argued that the agreement gave it “unfettered discretion as to how insurance proceeds should be applied.”21 In ruling on the lender’s motion to dismiss, the court found that the plaintiff had adequately pled breach of contract because more specific sections of the contract controlled over the general provisions cited by the lender.22 The court then examined the breach of good faith claim. The court stated that, generally, to state a claim for breach of good faith a party must allege “a conscious and deliberate act, which unfairly frustrates the agreed common purpose and disappoints the reasonable expectations of the other party, thereby depriving that party of the benefits of the agreement.”23 Further, even if a party has substantial discretion, “the duty to act in good faith nevertheless limits that party’s ability to act capriciously to contravene the reasonable contractual expectations of the other party.”24 The court found that the complaint sufficiently pled a breach of the covenant of good faith and fair dealing, and denied the lender’s motion to dismiss.

REASONABLENESS AND ENFORCEABLE EXPECTATIONS At times, contracts giving one party the right to act in its absolute discretion will expressly provide that such discretion must be exercised in a reasonable manner. Where not expressed, however, courts may find that a reasonableness standard is implied into the contract. In Wells Fargo Bank, N.A. v. The Ash Org., the Oregon district court, relying on the implied covenant of good faith and fair dealing, imposed an implied reasonableness requirement on the lender’s exercise of “sole and absolute discretion.”25 The lender contended that the phrase “sole and absolute discretion” in the agreement provided that lender “may unreasonably with486

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hold consent to a second lien.”26 The borrower argued that the “authority to exercise discretion is different from authority to act unreasonably.”27 The court concluded that “a lender’s authority to exercise ‘sole and absolute discretion’ does not include the authority to exercise that discretion unreasonably” and “under Oregon law, a party must exercise its discretion within the boundaries of Oregon’s implied duty of good faith and fair dealing.”28 Applying these limitations “means, at a minimum, that the ‘sole and absolute discretion’ granted to [lender by the deed of trust] does not include a right to act arbitrarily, capriciously, or in bad faith.”29 The court then emphasized the importance of being guided by the parties’ expectations at the time they entered into the agreement, and elaborated:

For example, if a borrower experienced indisputable problems with its income stream, it is within the reasonable expectations of the parties that the lender would move toward foreclosure. And it would not be relevant for the borrower to argue that it could have resuscitated its income stream and turned its business around if the lender had given it more time. The key question would not be whether the borrower had a sound business proposal for generating future income, but whether there were certain facts about the status of the loan that grounded the lender’s decision in the reasonable expectations of the parties. Therefore, the same lender would act in bad faith if the borrower’s income stream was fine but the lender nevertheless withheld its consent to a second lien because of racial bias or because the borrower’s property has dramatically increased in value and the lender wanted to acquire it.30

The court thus denied the lender’s motion for summary judgment in light of the evidence presented by the borrower that, when the lender refused consent to a second lien, its motive was to acquire the borrower’s property, rather than preserve the borrower’s income stream.31

DISCRETION TO TERMINATE LOANS A number of courts have found that, where the lender has the contractual right to exercise discretion to extend or terminate a loan, the duty of good 487

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faith and fair dealing will not preclude lenders from exercising that right, regardless of the reason, particularly where the borrower has defaulted. A New York trial court recently held that a borrower had “no enforceable expectation that Plaintiff would use good faith in deciding whether to terminate financing.”32 In Hudson Valley Bank, N.A. v. BanxCorp., the plaintiff lender brought an action against the defendant borrower and defendant guarantor for nonpayment of loans under a credit line agreement.33 The credit line agreement at issue provided that the plaintiff “Bank may, at any time in its sole discretion, for any reason or for no reason whatsoever, terminate Borrower’s ability to receive loans or advances,” that the loans were payable on demand, and that the “Bank may make this demand at any time after the date hereof in its sole discretion….”34 The court explained the limits on the duty of good faith and fair dealing:

The concept that every contract carries with it a promise to use good faith and fair dealing in executing the contract does not extend so far as to permit the courts to re-write the agreements of the parties by deleting provisions they made or adding provisions they did not make.35

Therefore, since “the Agreement gave Plaintiff the right to terminate its financing at any time in its sole discretion, the Court cannot re-write the Agreement in order to create an obligation on the part of Plaintiff.”36 Accordingly, the court granted the lender’s motion for summary judgment in lieu of complaint.37 In Chrysler Credit Corp. v. Dioguardi Jeep Eagle, a New York appellate court dismissed the defendant borrower’s affirmative defenses and counterclaims based on breach of an implied duty of good faith and fair dealing because the plaintiff lender had “sole discretion” to extend financing to the borrower and the borrower had defaulted.38 The court found that the obligation of good faith “may not be implied when it would be inconsistent with other terms of the contract between the parties” and a “financing institution does not act in bad faith when it exercises its contractual right to terminate financing.”39 Similarly, in Lazar’s Auto Sales, Inc. v. Chrysler Fin. Corp., a New York federal court denied a borrower’s request for a preliminary injunction to prevent the lender from terminating a financing.40 The court found that the lender

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did not act in bad faith in exercising its right to terminate an agreement that gave lender “sole discretion” to determine the maximum amount of credit advances to be allowed.41 Indeed, the court found that “the financing agreements between [lender] and the dealerships reserve considerable discretion for [lender] to terminate the agreements, refuse to advance funds, and declare all amounts due and payable, based on changes in the plaintiffs’ financial practices.”42 In Better Homes Depot Inc. v. New York Community Bank, the defendant bank allegedly wrongfully terminated a $25 million line of credit in favor of the plaintiff, a business that acquired and re-sold residential properties.43 Pursuant to a loan agreement between the parties, “the decision to accept Additional Properties and make a new loan with respect thereto shall be made in the sole and absolute discretion” of defendant lender.44 The New York trial court held that the defendant had the discretion under the loan agreement to terminate “its loans to [plaintiff ] in light of factors including the declining real estate market and [its principal’s] default under his personal line of credit.”45 Further, the court found that “the duty of good faith and fair dealing did not impose an obligation on the [defendant] to make additional loans” to plaintiff, and thus the court dismissed the complaint.46 A Virginia court found that the implied duty of good faith could not defeat the parties’ expectations of the “express and bargained for term” that a lender had sole discretion to refuse to extend the term of a loan.47 In Wachovia Bank, N.A. v. Preston Lake Homes, LLC, the loan agreement provided that the lender “may” grant extensions to the loan:

So long as Borrower is not in default, has made the minimum principal curtailment payments on the Loan, and the financial condition of the Borrower, Guarantor, and the Preston Lakes project remain satisfactory, a 6 or 12 month extension may be provided.48

The borrower argued that “Wachovia had an obligation to exercise this discretion in good faith and in accordance with the parties’ mutual understanding that the project would take longer to complete than the stated loan term.”49 But the court disagreed, finding that the lender’s right to refuse to extend was unfettered:

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This interpretation of the implied duty of good faith goes too far. Even if Preston Lake’s allegations are true, and Wachovia declined to renew the Loan Agreements because of Wachovia’s rapidly deteriorating financial situation and not Preston Lake’s alleged default, that conduct did not breach the terms of the contract. The contract allowed Wachovia to freely decline the option, regardless of its rationale.50

Thus, the court dismissed the defendant borrower’s counterclaim for breach of contract. Likewise, in Wachovia Bank, N.A. v. Vesta 50 LLC, a New York court granted the plaintiff lender’s motion for summary judgment because the lender had discretion under the loan agreement to refuse extensions of the loan maturity date after any default by the borrower.51 The loan note provided that the maturity date was “subject to the possible extension thereof pursuant to the terms and provisions of the Loan Agreement,” which “gave [plaintiff ] discretion in extending the due date of the loan.”52 The court found that while “a lender must act in good faith, or, stated otherwise, in a reasonable manner when exercising its discretion…defendant Vesta failed to raise an issue of fact concerning whether the plaintiff lender acted in good faith.”53 Further, the court found that the defendant’s assertion of bad faith rested only “on surmise, suspicion, and conjecture concerning the possible effect the banking crisis of 2008-2009 had on its relationship” with the bank, which did not suffice to defeat a motion for summary judgment.54 In Symbolic Aviation, Inc. v. PNCEF, LLC, a California district court found that, under both California and Ohio law, the borrower failed to state a claim for breach of the implied covenant of good faith and fair dealing when the lender had “sole and absolute discretion” to make additional extensions to the loan maturity date.55 The court found that it “is ‘not at liberty to imply a covenant directly at odds with a contract’s express grant of discretionary power.’”56

LENDERS’ DISCRETION AND ILLUSORY AGREEMENTS Occasionally, courts will invoke the duty of good faith and fair dealing to limit the exercise of discretion where the exercise of that discretion would otherwise be so unfettered as to render the contract unenforceable because it is 490

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illusory. If an agreement is supported by adequate consideration, some courts are reluctant to find that the agreement, despite broad discretion language, is illusory.57 Some courts have looked to the duty of good faith and fair dealing as a way of rescuing what might otherwise be deemed an illusory contract, rationalizing that parties intended to enter into an agreement that was enforceable.58 Two courts have recently made somewhat divergent findings when considering whether a lender’s sole discretion rendered an agreement illusory. A California district court recently found that, unless the duty of good faith applied to restrict the exercise of lender’s discretion, a forbearance agreement would be rendered illusory due to lender’s unfettered discretion to foreclose.59 As a result, the court rejected Wells Fargo’s argument that “no claim for breach of contract can be stated because it had sole discretion to terminate the Agreement at any time without notice to Plaintiffs.”60 While the court agreed that it was “true that the termination provision allows Wells Fargo to foreclose on Plaintiffs’ home at any time, without notifying Plaintiffs…even if Plaintiffs have complied with all the requirements of the Agreement,” it found that the “the Agreement gives Wells Fargo such unfettered discretion in connection with its purported contract obligations that it is illusory unless the Court implies a covenant of good faith and fair dealing into it.”61 The court concluded that it could not determine, as a matter of law, that Well’s Fargo had not breached the duty of good faith and fair dealing.62 Conversely, a New York federal court ruled that a lender’s promise to lend was not rendered illusory due to broad discretionary language in the commitment agreement, such as “Lender’s commitment hereunder is subject to Lender’s approval in its sole discretion of the Collateral, the Disclosure Materials, and other due diligence by Lender.”63 The court found that, although the agreement provided the lender with considerable discretion, “such discretionary language is not uncommon in loan commitment agreements and does not render them unenforceable.”64 Nevertheless, the court noted the parties had a general implied duty to act in good faith, and that the objective evidence demonstrated that the lender did indeed intend to close the loan.65

CONCLUSION The foregoing cases indicate that the implied duty of good faith and fair dealing frequently is called upon in a court’s analysis of the propriety of 491

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a lender’s contractual regard of sole discretion. The extent of a lender’s sole discretion varies depending upon the express contractual terms, the parties’ expectations, and whether the lender has truly acted in bad faith. The one possible exception to this approach is in the context of a lender’s right to terminate or refuse to extend a loan. There, courts seem far less willing to find that the implied duty of good faith constrains a lender’s express right to terminate or to refuse to extend.

NOTES See Hudson Valley Bank, N.A. v. BanxCorp, No. 6628/10, 28 Misc. 3d 1232(A), 2010 WL 3516076, at *9 (N.Y. Sup. West. Co. Sept. 7, 2010). 2 No. 31923/08, 31 Misc. 3d 1229(A), 2011 WL 1944205, at *2, *9 (N.Y. Sup. Kings Co. May 20, 2011). 3 Id. at *1-2. 4 Id. at *2. 5 Id. 6 Id. 7 Id. at *3-4. 8 Id. at *4-6. 9 Id. at *5. 10 Id. at *6. 11 Id. 12 Id. at *7-8. 13 Id. at *9 (citing Dalton v. Educ. Testing Serv., 87 N.Y.2d 384, 389, 639 N.Y.S.2d 977 (1995)). 14 Id. 15 Id. at *9. 16 Id. at *11. 17 Id. at *9. 18 No. 8:09-cv-2322-T-33AEP, 2010 WL 2136535, at *1 (M.D. Fla. May 26, 2010). 19 Id. 20 Id. at *5 (emphasis omitted). 21 Id. 22 Id. at *6. 23 Id. 24 Id. 25 No. 09-CV-188-MO, 2010 WL 2681675, at *7 (D. Or. July 2, 2010). 1

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Id. Id. 28 Id. 29 Id. 30 Id. at *8. 31 Id. 32 Hudson Valley Bank, N.A. v. BanxCorp, 2010 WL 3516076, at *9. 33 Id. at *1. 34 Id. at *8. 35 Id. at *9. 36 Id. 37 Id. at *11. 38 192 A.D.2d 1066, 596 N.Y.S.2d 230 (4th Dep’t 1993). 39 Id. at 1067. 40 No. 99 Civ. 0213(CM), 1999 WL 123501, at *1 (S.D.N.Y. Mar. 2, 2009). 41 Id. at *7. 42 Id. 43 No. 022670-10, 2011 WL 2110359 (N.Y. Sup. Nassau Co. May 10, 2011). 44 Id. 45 Id. 46 Id. 47 Wachovia Bank, N.A. v. Preston Lake Homes LLC, 750 F. Supp. 2d 682 (W.D. Va. 2010). 48 Id. at 685-86 (emphasis in original). 49 Id. at 688. 50 Id. at 689. 51 No. 2820/10, 2011 WL 343252 (N.Y. Sup. Queens Co. Jan. 11, 2011). 52 Id. 53 Id. 54 Id. 55 No. 10cv1228-WQH-AJB, 2010 WL 3584509, at *6 (S.D. Cal. Sept. 8, 2010). 56 Id. (citations omitted). 57 See Wolf v. Walt Disney Pictures & Television, 76 Cal. Rptr. 3d 585, 598-99 (Cal. Ct. App. 2008). 58 See Teri J. Dobbins, Losing Faith: Extracting the Implied Covenant of Good Faith from (Some) Contracts, 84 Or. L. Rev. 227, 244-47 (2005). 59 Reyes v. Wells Fargo Bank N.A., No. C-10-01667 JCS, 2011 WL 30759, at *16 (N.D. Cal. Jan. 3, 2011). 60 Id. The agreement provided: “The lender, in its sole discretion and without further 26 27

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notice to you, may terminate this Agreement. If the Agreement is terminated, the lender may institute foreclosure proceedings….” Id. at *3. 61 Id. at *16. 62 Id. The court dismissed the borrower’s claim on other grounds. 63 SSP Capital Partners, LLC v. Mandala, LLC, 715 F. Supp. 2d 443, 448 (S.D.N.Y. 2009) (granting summary judgment for defendant borrowers because the commitment was non-binding on other grounds), aff ’d, 402 F. App’x 572 (2d Cir. 2010). 64 Id. 65 Id.

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