Metro. Life Ins. Co. v. RJR Nabisco, Inc.

716 F. Supp. 1504 (S.D.N.Y. 1989)

 

RULE:

In contracts like bond indentures, an implied covenant derives its substance directly from the language of the indenture, and cannot give the holders of debentures any rights inconsistent with those set out in the indenture. Where plaintiffs' contractual rights have not been violated, there can have been no breach of an implied covenant.

FACTS:

Plaintiff investors filed an amended complaint against defendants, corporation and its chief executive officer (CEO), alleging injuries sustained in connection with the corporation's leveraged buy-out (LBO) of its shareholders. The investors filed motions for summary judgment on the counts of their amended complaint that alleged breach of the implied covenant of good faith and fair dealing, and a cause of action in equity. The corporation and CEO filed cross-motions for judgment on the pleadings or, in the alternative, for summary judgment.

ISSUE:

Did the corporation and its CEO breach the covenant of good faith?

ANSWER:

No.

CONCLUSION:

The court denied the investors' motions and granted the corporation and CEO summary judgment. It held that the fruits of the indentures did not include an implied restrictive covenant to prevent the incurrence of new debt to facilitate the LBO. The court reasoned that the investors did not invoke an implied covenant of good faith to protect a legitimate, mutually contemplated benefit; rather, they sought to have the court create an additional benefit for which they did not bargain. It found that the investors' cause of action in equity also failed, because they were informed participants in a largely impersonal market and possessed the financial sophistication and size to secure their own protection; therefore, they did not require a court's equitable protection.

 

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