Riveredge repeatedly argues in its briefs that to allow this
cause of action to go forward would punish parties for asserting
their legal rights and for failing to accurately predict the
outcome of a lawsuit initiated by them. Riveredge assumes both
too much and too little with this argument. It assumes too much
in that it assumes a party has an absolute legal right to be free
from lawsuits based on its assertion in bad faith of a legal
position that, though not frivolous, violates the spirit of an
agreement. No such right exists under New Jersey law.
Riverside assumes too little in that it fails to appreciate the
liberal standard under which Metropolitan's complaint must be
construed on this motion. Riveredge contends that it did not act
in bad faith when it commenced its action against Metropolitan.
On this motion, however, the Court must take as true the
allegations in the complaint. Should it turn out that no evidence
is produced during discovery to support Metropolitan's claim that
the complaint was lodged despite Riveredge's own contrary
understanding of its obligations under the agreements, then
summary judgment may be in order.
To allow Metropolitan to attempt to prove its claims no more
punishes Riveredge for its inability to predict the outcome of
its suit than does the common law recognition of a cause of
action for malicious prosecution or abuse of process. In either
case, liability, if any, flows not from the party's lack of
foresight, but rather from its wrongful conduct. If Riveredge
filed its complaint in good faith, then it need not fear
"punishment." The issue of lack of good faith, however, cannot be
resolved on a motion to dismiss for failure to state a claim.
Riveredge's argument that allowing this action to go forward
would somehow deprive it of its "basic right to seek redress in
the courts" is without support in the law. There exists no more
of a "basic right" to be free of breach of implied covenant of
good faith actions than there is any right to be free of
malicious prosecution suits. Riveredge's citations to cases
recognizing anti-trust immunity under the Noerr-Pennington
doctrine are inapposite. That doctrine recognizes immunity from
antitrust liability for individuals who seek to influence
governmental action. Allied Tube & Conduit Corp. v. Indian Head,
Inc., 486 U.S. 492, 108 S.Ct. 1931, 1936, 100 L.Ed.2d 497 (1988).
It does not in any way recognize a constitutional right to be
free from suit based on the wrongful prosecution of lawsuits.
Even Noerr-Pennington immunity, moreover, does not extend to
behavior that constitutes an abuse of the judicial process. Id.
Riveredge's further citations to cases in which courts
recognize a quasi-constitutional right of access to seek redress
for deprivations of constitutional rights are also inapposite.
Those cases deal with the basic right to assert constitutional
claims in the first instance. They in no way deal with the issue
of immunity from later suit based on the filing of the initial
Riveredge has not been deprived of its right to seek
enforcement of its private contractual rights. It filed its
action, which was subsequently dismissed on the merits.
Metropolitan now claims that that action was brought in bad
faith. New Jersey case law supports the cause of action.
Metropolitan is entitled, just as Riveredge was, to seek
enforcement of its contractual rights. Therefore, the motion to
dismiss for failure to state a claim must be denied.
Riveredge additionally argues that the measure of damages
sought by Metropolitan — its legal costs, including attorneys'
fees — is improper and unwarranted by the law. It argues that
unless conduct violative of Rule 11 is implicated, the allowance
of attorneys' fees would contravene the "american rule" that each
party bear its own costs of litigation.
The Court disagrees. As Metropolitan points out, attorneys fees
are a proper element of damages when the right violated is the
right to be free from suit. That is the prevailing rule in
malicious prosecution cases and in contract actions in which a
covenant not to sue has been agreed to.
See Mayflower Industries v. Thor Corp., 15 N.J.Super. 139, 175,
83 A.2d 246 (Ch.Div. 1951) (malicious prosecution); Anchor Motor
Freight, Inc. v. Int'l Bhd. of Teamsters, 700 F.2d 1067, 1072
(6th Cir. 1983). Metropolitan alleges that the implied covenant
of good faith and fair dealing entitled it to be free of suits
brought by Riveredge in bad faith. The Court has already
determined this to be a valid cause of action. Riveredge's
attempt to draw a distinction between implied rights and express
rights is unpersuasive. Implied contractual rights are just as
enforceable as express contractual rights. An implied right to be
free from suit therefore stands on the same legal footing as a
similar express right contained in a covenant not to sue.
Metropolitan asserts that the logical measure of damages for
such a breach is its costs of defending against the allegedly
wrongful suit. Although no decisional authority is directly on
point, the Court agrees with Metropolitan's position. Restatement
§ 205 comment a states that "the appropriate remedy for a breach
of the duty of good faith . . . varies with the circumstances."
Under these circumstances, the Court believes that attorneys'
fees and other costs of defending against a wrongful action are
the proper measure of damages. If the covenant breached is a
promise not to file suit in bad faith, then the logical measure
of damages is the direct consequence of breach of that right: the
costs of defending the wrongful suit.
Riveredge's primary argument against allowing attorneys' fees
as a measure of damages in this case is that it would violate the
"american rule." The "american rule" is not a constitutional
right. Riveredge's repeated quotation from Alyeska Pipeline
Service Co. v. Wilderness Society, 421 U.S. 240, 95 S.Ct. 1612,
44 L.Ed.2d 141 (1975), that federal courts "are not free to
fashion drastic new rules with respect to the allowance of
attorneys' fees to the prevailing party in federal litigation,"
id. at 269, 95 S.Ct. at 1627, is inapposite. First, this Court is
not "fashioning" any "drastic new rule", but is merely applying
what it predicts is the law of New Jersey, as it must in this
diversity action. Second, this is not "federal" litigation in the
sense referred to in Alyeska, which implicated federal statutory
rights, but is merely a diversity action concerning issues solely
of state law.
Another argument halfheartedly asserted by Riveredge is that
Metropolitan cannot seek punitive damages on its breach of
contract claim. Though Riveredge concedes that New Jersey law
clearly allows for the award of punitive damages in a contract
action under circumstances that constitute egregious behavior, it
contends that there are "no conceivable set of facts" that could
be imagined in this case that would warrant the award of punitive
damages. The Court need not attempt to catalog facts that would
warrant the imposition of punitive damages in this case. It is
sufficient, for purposes of this motion to dismiss, that
Metropolitan has alleged that Riveredge willfully and
deliberately breached its agreement with Metropolitan. If
supported at trial by evidence of an egregious nature, that
allegation would merit sending the issue to the jury for its
2. Summary Judgment
Riveredge's motion for summary judgment must be denied because
little or no discovery has yet taken place with respect to
Metropolitan's counterclaim, and Metropolitan has asserted that
discovery is necessary at least as to the issue of Riveredge's
knowledge, intentions and lack of good faith. Fed.R.Civ.P. 56(f).
3. Motion to Compel Discovery
Riveredge has not answered discovery requests made by
Metropolitan. Its principal reason for not doing so was its
belief that its motion to dismiss was meritorious, and that it
should therefore not be required to needlessly comply with the
requests prior to disposition of the motion. As Riveredge's view
of its motion to dismiss was overly optimistic, Metropolitan's
motion to compel will be granted.
There apparently is some disagreement between the parties over
the relevance of some of Metropolitan's discovery requests,
which were propounded before Riveredge's complaint was dismissed
on motion for summary judgment. The parties should attempt to
agree between them as to which of Metropolitan's requests are
still germane to the counterclaim. If the parties cannot agree,
a new discovery motion should be made to Magistrate Judge Haneke.
Metropolitan has also moved for sanctions in connection with
Riveredge's failure to comply with the discovery requests.
Riveredge's position that the motion to dismiss should be
resolved before discovery occurs was not unreasonable. The
decision not to comply with the requests was undertaken in good
faith and does not warrant the imposition of sanctions.
Therefore, Metropolitan's motion for sanctions will be denied.
For the preceding reasons, Riveredge's motion to dismiss for
failure to state a claim will be denied. Its alternative motion
for summary judgment will also be denied. Metropolitan's motion
to compel discovery will be granted. Metropolitan's motion for
sanctions will be denied.
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