The opinion of the court was delivered by: Wolin, District Judge.
Before the Court is Riveredge Associates' ("Riveredge's")
motion to dismiss Metropolitan Life Insurance Co.'s
("Metropolitan's") counterclaim pursuant to Federal Rule of Civil
Procedure 12(b)(6) for failure to state a claim on which relief
can be granted, or in the alternative, for summary judgment
pursuant to Federal Rule of Civil Procedure 56(c). For the
following reasons, the Court will deny plaintiff's motion. Also
before the Court is Metropolitan's motion to compel discovery and
for sanctions. That motion will be granted as to compelling
discovery, but denied as to sanctions.
Riveredge borrowed $11.5 million from Metropolitan in February
1984 to purchase real estate. The loan was secured by a Note and
a Mortgage on the property. On the day the loan closed, Riveredge
Plaza Associates ("Plaza"), a general partnership,
was created by Riveredge and Metropolitan. Pursuant to the
Partnership Agreement, Riveredge conveyed the real estate to
Plaza, subject to the Note and Mortgage. Metropolitan owns a 70%
interest in the partnership, and Riveredge owns a 30% interest.
Riveredge commenced this action in state court on May 2, 1990,
alleging that Metropolitan had breached a fiduciary obligation,
and had breached the Partnership Agreement, by refusing to allow
prepayment of the loan from Metropolitan to Plaza. Metropolitan
removed the action to this Court.
Both parties moved for summary judgment on the issue of
Metropolitan's duty to allow prepayment of the loan. In an
Opinion dated January 16, 1991, this Court denied Riveredge's
motion and granted Metropolitan's motion. 774 F. Supp. 892. The
Court found that as a matter of law, Metropolitan was under no
obligation, fiduciary or contractual, to allow Plaza to prepay
the $11.5 million loan. Riveredge's motion for reconsideration
was denied in a letter opinion dated April 2, 1991.
In its answer to Riveredge's complaint, Metropolitan asserted
the counterclaim that is the subject of this motion. The
counterclaim alleges that Riveredge, by commencing and
maintaining a lawsuit based on its bad faith interpretation of
the partnership agreement, mortgage and note, breached the
implied covenants of good faith and fair dealing contained in
those agreements. Riveredge now moves to dismiss this action.
1. Failure to State a Claim
On motion to dismiss under Rule 12(b)(6), the Court must accept
as true all allegations in the complaint, and provide the
plaintiff with the benefit of all inferences that fairly may be
drawn from the complaint. Wilson v. Rackmill, 878 F.2d 772, 775
(3d Cir. 1989). The complaint cannot be dismissed unless the
court is certain that no set of facts can be proved that would
entitle plaintiff to relief. Id.; Conley v. Gibson, 355 U.S. 41,
45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957).
Metropolitan's theory of its counterclaim is straightforward.
It alleges that Riveredge instituted an action against
Metropolitan in bad faith, based on interpretations of the
Mortgage, Note, and Partnership Agreement that it knew were
clearly contradicted by the express language of those agreements.
Metropolitan further alleges that this conduct constituted a
breach by Riveredge of the implied-in-law covenant of good faith
and fair dealing contained in those agreements. Last,
Metropolitan alleges that its damages consist of the costs,
including legal fees, of defending against this bad faith legal
action. Riveredge contends that no such cause of action exists,
and that Metropolitan's counterclaim must therefore be dismissed.
In support of its counterclaim, Metropolitan relies primarily
on the comments to § 205 of the Restatement (Second) of
Contracts, and Association Group Life, Inc. v. Catholic War
Veterans of the United States of America, 61 N.J. 150,
293 A.2d 382 (1972). Section 205 provides that "Every contract imposes
upon each party a duty of good faith and fair dealing in its
performance and its enforcement." Restatement (Second) of
Contracts § 205 (1981) ("Restatement"). New Jersey has recognized
this implied covenant since at least 1965. Palisades Properties,
Inc. v. Brunetti, 44 N.J. 117, 130, 207 A.2d 522 (1965). This
covenant requires that "neither party shall do anything which
will have the effect of destroying or injuring the right of the
other party to receive the fruits of the contract." Id. at 130,
207 A.2d 522 (quotation omitted); see Restatement § 205 comment
a (good faith requires adherence to the agreed purpose of the
contract and "consistency with the justified expectations of the
Consistent with comment e is the New Jersey Supreme Court's
decision in Catholic War Veterans. In that decision the court
found that the covenant could be breached even when the
defendant's acts "did not literally violate" the agreement in
issue. 61 N.J. at 153, 293 A.2d 382. It held that a cause of
action could be maintained if a jury could rationally find that
a party to the contract engaged in behavior "not ...