Singh v. City of New York
2020 NY Slip Op 08123 (2020)
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Rule of Law:
The implied covenant of good faith and fair dealing cannot be breached by a party's actions when those actions are related to matters expressly disclaimed in the contract. An obligation cannot be implied if it would be inconsistent with the explicit terms of the contractual relationship.
Facts:
- The City of New York and the New York City Taxi and Limousine Commission (TLC) held auctions for taxi cab medallions in late 2013 and early 2014.
- Daler Singh and other plaintiffs purchased these medallions from the City.
- The official bid form signed by the plaintiffs included a clause stating the City made no representations or warranties regarding the future value of the medallions or future TLC rules.
- Plaintiffs alleged that prior to the auctions, the TLC intentionally overstated the medallions' value and hid information about their declining worth.
- After the auctions, the TLC allegedly undermined the medallions' value by licensing and permitting competitors like Uber to operate in ways that created direct and illegal competition with medallion taxis.
- Specifically, the TLC licensed Uber affiliates who did not meet black car licensing requirements and allowed them to accept street hails.
Procedural Posture:
- The plaintiffs, Daler Singh et al., filed a purported class action lawsuit against the City of New York and the TLC in the Supreme Court of New York, Queens County, which is a trial court.
- The plaintiffs' complaint included causes of action for violation of General Business Law § 349 and for breach of the implied covenant of good faith and fair dealing, seeking damages and rescission.
- The defendants moved to dismiss the complaint under CPLR 3211(a) for failure to state a cause of action.
- The trial court granted the defendants' motion to dismiss the General Business Law § 349 claim but denied the motion to dismiss the claims related to the breach of the implied covenant of good faith and fair dealing.
- The plaintiffs, as appellants, appealed to the Appellate Division, Second Department, from the dismissal of their § 349 claim.
- The defendants, as respondents-appellants, cross-appealed to the same court from the denial of their motion to dismiss the implied covenant claims.
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Issue:
Does a party breach the implied covenant of good faith and fair dealing by taking actions that diminish the value of a purchased asset when the contract explicitly disclaims any warranties or representations as to the asset's future value or the application of future regulations?
Opinions:
Majority - Scheinkman, P.J.
No. A party does not breach the implied covenant of good faith and fair dealing when its actions are consistent with the explicit terms of the parties' agreement. The court reasoned that the duty of good faith and fair dealing is not without limits and no obligation can be implied that would be inconsistent with other terms of the contract. Here, the plaintiffs signed an official bid form which included an explicit acknowledgment that the City had made no representations or warranties as to the future value of the medallions or the future application of TLC rules. Therefore, no reasonable person in the plaintiffs' position would be justified in believing the defendants had implicitly promised to act or refrain from acting to protect the medallions' value, as such a promise would directly contradict the contract's disclaimer. The plaintiffs' separate claim under General Business Law § 349 sounded in tort and was correctly dismissed for failure to file a timely notice of claim as required by General Municipal Law § 50-e.
Analysis:
This decision reinforces the principle that the implied covenant of good faith and fair dealing cannot be used to rewrite a contract or create new obligations that contradict its express terms. It underscores the legal power of clear and specific disclaimers, particularly in agreements with government entities. The ruling establishes that when a party explicitly disclaims responsibility for future market conditions or regulatory changes, it is shielded from claims that its subsequent actions, which affect those conditions, constitute a breach of the implied covenant. This holding makes it more difficult for purchasers of government-issued licenses or assets to challenge subsequent government policies that negatively impact the value of their investment.
