CCR International, Inc. v. Elias Group, LLC et al
Filing
260
OPINION AND ORDER: For the foregoing reasons, the Court grants Elias's motion for summary judgment seeking to dismiss the CCR Parties' sole remaining claim, for the breach of the implied covenant of good faith and fair dealing. As a resul t, the only claims remaining in this case are Elias's counterclaims, which Elias has represented it intended to voluntarily dismiss if the Court dismissed the CCR Parties' remaining claim. Dkt. 255 at 2. The Court directs Elias to so move by April 12, 2021, and for the parties to submit a joint letter, by three days later, i.e., April 15, 2021, with their views as whether, with all claims dismissed, this case may now be closed. SO ORDERED. (Motions due by 4/12/2021.) (Signed by Judge Paul A. Engelmayer on 4/5/2021) (jca)
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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
CCR INTERNATIONAL, INC., CCR
DEVELOPMENT GROUP, INC., JOSÉ
FUERTES, and BANCO COOPERATIVO
DE PUERTO RICO,
Plaintiffs and Counterclaim
Defendants,
15 Civ. 6563 (PAE)
16 Civ. 6280 (PAE)
17 Civ. 6697 (PAE)
OPINION &
ORDER
-vELIAS GROUP, LLC,
Defendant and Counterclaim
Plaintiff.
PAUL A. ENGELMAYER, District Judge:
On December 22, 2020, the Court issued an opinion and order dismissing most of the
claims brought by CCR International, Inc. (“CCR”), CCR Development Group, Inc. (“CCRDG”),
and José Fuertes (“Fuertes,” and, together with CCR and CCRDG, the “CCR Parties”) against
Elias Group, LLC (“Elias”). See CCR Int’l, Inc. v. Elias Grp., LLC, No. 15 Civ. 6563 (PAE),
2020 WL 7629325 (S.D.N.Y. Dec. 22, 2020) (“CCR I”). The CCR Parties alleged that Elias,
through several transactions in which it bought a soda company from the CCR Parties, had
agreed, but failed, to pay an additional $8.5 million to CCR, and to pay Fuertes annual amounts
associated with an independent-contractor agreement. The Court held that Elias, in fact, had not
agreed to pay CCR the $8.5 million that CCR claimed it was owed, and granted Elias’s motion
for summary judgment on the CCR Parties’ breach-of-contract claims. The Court also held that
Fuertes had not shown that he was entitled to any further compensation, and so granted Elias’s
motion for summary judgment as to his breach-of-contract claims as well. That decision thus
dismissed all of the CCR Parties’ breach-of-contract claims.
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Elias, however, did not move for summary judgment on the CCR Parties’ last remaining
claim, for breach of the implied covenant of good faith and fair dealing (the “implied covenant”).
Nor had either party moved for summary judgment as to any of Elias’s counterclaims. The Court
thus directed the parties to confer as to the rational next steps to address each side’s surviving
claims. In response, Elias stated that it had intended to move for summary judgment on the CCR
Parties’ claim for breach of the implied covenant, but had inadvertently neglected to do so, and
so sought leave to file expedited, supplemental briefing on that sole remaining claim. Elias also
represented that, should all of the CCR Parties’ claims be dismissed, it intended to voluntarily
dismiss its counterclaims.
Before the Court is Elias’s supplemental brief seeking summary judgment against the
CCR Parties’ claim for breach of the implied covenant of good faith and fair dealing. For the
following reasons, the Court grants that application.
I.
Background
The Court assumes familiarity with the complex history of this case and incorporates by
reference the fuller factual recitations provided in the Court’s summary judgment decision and
prior orders. See CCR I, 2020 WL 7629325, at *1–8; Dkt. 182. The Court sets forth here only
the facts relevant to the pending motion.
Before March 31, 2008, CCR owned a soda company, Coco Rico, along with assets and
trademarks associated with it (the “Coco Rico assets”). See Dkt. 242-1 (“JSF”) ¶ 11. On that
date, it sold the Coco Rico assets to CCRDG for $12.8 million under an asset purchase
agreement. See id.; Dkt. 242-11 (“2008 APA”). CCRDG largely paid that purchase price by
issuing CCR a $9 million note. See Dkt. 242-3 (“Fuertes Tr.”) at 39. CCRDG ultimately paid
only between $3 and $4 million under the 2008 APA; it defaulted on the remaining amounts.
See JSF ¶ 19; Fuertes Tr. at 205.
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After CCRDG defaulted, CCR “explored many alternatives,” but ultimately “went for
help” to Richard Hahn, the sole member of Elias, who had a longstanding relationship with the
CCR Parties. Fuertes Tr. at 51, 86, 134–36. In January 2013, CCR assigned to Elias all of
CCR’s rights to receive payment from CCRDG under the 2008 APA, which CCR represented
were “at least $9,000,000.” See JSF ¶¶ 23–24; Dkt. 242-15 (“Assignment Agreement”) § 1.01.
Under the Assignment Agreement, Elias agreed to pay CCR (1) a $300,000 “initial payment”;
(2) monthly amounts it received from CCRDG, if any; and (3) if Elias later acquired the Coco
Rico assets from CCRDG, either $450,000 per year until Elias paid a “Buyout Amount,” or the
Buyout Amount. See Assignment Agreement § 1.03. The Assignment Agreement defined
Buyout Amount to mean, as relevant here, $5 million reduced by the following:
If the aggregate consideration given by [Elias] for its acquisition of the Coco Rico
Assets includes the payment of any amount or other valuable consideration in
addition to the release of CCRDG’s payment obligations under the [2008 APA],
then by the amount of such additional payment or the value of such additional
consideration (such value, as reasonably determined by [Elias]).
Id. § 1.03(c)(iii)(2). In other words, if Elias bought the Coco Rico assets from CCRDG, it had to
pay CCR $5 million less any amounts it paid to CCRDG above and beyond “the release of
CCRDG’s payment obligations under the” 2008 APA.
In June 2013, Elias and CCRDG entered into an option agreement granting Elias certain
rights to purchase the Coco Rico assets from CCRDG. See JSF ¶ 33; Dkt. 242-16 (“Option
Agreement”). Under that agreement, Elias obtained the right to acquire those assets from
CCRDG by paying $5.75 million and effecting “the irrevocable and complete release and
extinguishment of the purchase price obligations of [CCRDG] under the [2008 APA] . . . , which
APA was subsequently assigned by [CCR] to [Elias],” which the parties stipulated to be $8.5
million at that time. See Option Agreement § 1(a)(i)(A), (B).
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In April 2015, CCRDG agreed to sell the Coco Rico assets to Elias. JSF ¶ 39; Dkt. 242-18
(“2015 APA”). In exchange, Elias agreed to (1) pay $4.75 million in cash; (2) issue a $1 million
note to CCRDG, which CCRDG in turn agreed to assign to its lender; and (3) “concurrently with
Closing, release and extinguish all of the purchase price obligations of [CCRDG] to [Elias]
pursuant to the [2008 APA] . . . , which was subsequently assigned by [CCR] to [Elias].” 2015
APA § 2.04. CCRDG’s principal confirmed that Elias both paid the $4.75 million and released
CCRDG’s $8.5 million obligation to Elias under the assigned 2008 APA. See Dkt. 242-6 (“Rivera
Tr.”) at 36–37, 67–68. The 2015 APA also required CCRDG to deliver to Elias the Coco Rico
soda formula, including all copies of it, by the closing. 2015 APA § 3.02(a)(vii).
In June 2015, Elias wrote to CCR and Fuertes. Dkt. 242-19. Elias stated that it had
acquired the Coco Rico assets as defined by the Assignment Agreement, that it had elected to
pay the Buyout Amount, and that, under its interpretation of the Assignment Agreement, the
calculation of the Buyout Amount yielded that Elias did not owe CCR anything further. See id.
at 2–3. In support, Elias stated that, under the 2015 APA, it had released CCRDG’s payment
obligations to it, and also paid over $5 million to CCRDG. Id. As a result, deducting the latter
amount from the $5 million Buyout Amount, Elias concluded that it had “no further obligations
under the Assignment Agreement[.]” Id. at 3.
In August 2015, CCR filed a complaint against Elias in this Court. Dkt. 4. In July 2016,
Elias filed a complaint against CCRDG in New York State Supreme Court, which CCRDG
removed to this Court and which was then consolidated with CCR’s original action. Dkt. 81. In
September 2017, CCRDG’s lender sued Elias, alleging that Elias had failed to make payments on
the note associated with the 2015 APA. See Dkts. 103, 106. The Court also consolidated that
latter suit with the prior two, but has since settled. See Dkt. 232.
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In September 2019, after a long discovery period and substantial confusion over the
operative pleadings in the consolidated cases, the CCR Parties filed a consolidated amended
complaint. See Dkt. 201 (“CAC”). As relevant here, the CAC asserted claims against Elias for
breach of the Assignment Agreement, Option Agreement, and 2015 APA and breach of the
implied covenant of good faith and fair dealing, seeking $8.5 million in damages or rescission of
the parties’ agreements. Id. ¶¶ 104, 106–15. In November 2019, Elias answered the CAC and
brought counterclaims against the CCR Parties. Dkt. 215 (“Answer”).
Between March and May 2020, the parties briefed cross-motions for summary judgment
on most of the CCR Parties’ claims against Elias, but as mentioned, did not address the CCR
Parties’ claim for the breach of the implied covenant. See Dkts. 242–50. The CCR Parties argued
that Elias, through the Assignment Agreement, Option Agreement, and 2015 APA, agreed to pay
CCR the $8.5 million debt that CCR had, in 2013, assigned to Elias, but failed to pay. Elias
argued that it had never agreed to pay CCR that amount and had instead, in 2013, bought from
CCR the right to collect that $8.5 million from CCRDG, and later, in 2015, released CCRDG
from that obligation, as part of the consideration it paid for the Coco Rico assets.
On December 22, 2020, the Court resolved those motions, holding with Elias. The Court
held that, after the 2008 APA, CCRDG’s payment obligations were to Elias, not to CCR, and
that Elias’s only obligations to CCR arose under the Assignment Agreement. Because Elias’s
obligation to CCR under that agreement was $5 million less any amounts it paid to CCRDG for
the Coco Rico assets beyond the release of CCRDG’s debt to Elias, and because Elias had both
agreed to release CCRDG’s debts and to pay CCRDG more than $5 million, the Court held that
Elias did not owe any more payments to the CCR Parties.
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The Court then directed the parties to submit a joint letter with their views as to next
steps in this case. Dkt. 252. On January 18, 2021, the parties did so. Dkt. 255. In that letter,
Elias represented that its failure to move for summary judgment on the CCR Parties’ claim for
breach of the implied covenant was inadvertent, and it sought leave to file a supplemental
summary judgment motion as to that claim. Id. at 1–2. The CCR Parties did not oppose that
request. Id. at 2. Accordingly, on January 19, 2021, the Court set a briefing schedule for Elias’s
supplemental motion. Dkt. 256. On February 1, 2021, Elias filed that motion. Dkt. 257 (“Elias
Mem.”). On February 16, 2021, the CCR Parties opposed it. Dkt. 258 (“CCR Opp’n”). On
February 22, 2021, Elias replied. Dkt. 259 (“Elias Reply”).
II.
Legal Standard Governing Motions for Summary Judgment
To prevail on a motion for summary judgment, the movant must “show[] that there is no
genuine dispute as to any material fact and the movant is entitled to judgment as a matter of
law.” Fed. R. Civ. P. 56(a); see Celotex Corp. v. Catrett, 477 U.S. 317, 322–23 (1986). The
movant bears the burden of showing the absence of a question of material fact. In making this
determination, the Court must view all facts “in the light most favorable” to the non-moving
party. Holcomb v. Iona Coll., 521 F.3d 130, 132 (2d Cir. 2008).
If the movant meets its burden, “the nonmoving party must come forward with
admissible evidence sufficient to raise a genuine issue of fact for trial in order to avoid summary
judgment.” Jaramillo v. Weyerhaeuser Co., 536 F.3d 140, 145 (2d Cir. 2008). “[A] party may
not rely on mere speculation or conjecture as to the true nature of the facts to overcome a motion
for summary judgment.” Hicks v. Baines, 593 F.3d 159, 166 (2d Cir. 2010) (citation omitted).
Rather, to survive a summary judgment motion, the opposing party must establish a genuine
issue of fact by “citing to particular parts of materials in the record.” Fed. R. Civ. P. 56(c)(1)(A);
see also Wright v. Goord, 554 F.3d 255, 266 (2d Cir. 2009).
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“Only disputes over facts that might affect the outcome of the suit under the governing
law” will preclude a grant of summary judgment. Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 248 (1986). In determining whether there are genuine issues of material fact, a
court is “required to resolve all ambiguities and draw all permissible factual inferences in favor
of the party against whom summary judgment is sought.” Johnson v. Killian, 680 F.3d 234, 236
(2d Cir. 2012) (quoting Terry v. Ashcroft, 336 F.3d 128, 137 (2d Cir. 2003)).
III.
Discussion
A.
Applicable Legal Standards
Under New York law, a duty of good faith and fair dealing is implied in every contract,
to the effect that neither party “shall do anything which has the effect of destroying or injuring
the right of the other party to receive the fruits of the contract.” Thyroff v. Nationwide Mut. Ins.
Co., 460 F.3d 400, 407 (2d Cir. 2006) (quoting M/A–COM Sec. Corp. v. Galesi, 904 F.2d 134, 136
(2d Cir. 1990) (per curiam)). The implied covenant does not include any term inconsistent with
the terms of the contractual relationship, or “create duties which are not fairly inferable from the
express terms of that contract.” Interallianz Bank AG v. Nycal Corp., No. 93 Civ. 5024 (RPP),
1994 WL 177745, at *8 (S.D.N.Y. May 6, 1994). Nor can it “be construed so broadly as effectively
to nullify other express terms of a contract, or to create independent contractual rights.” Nasdaq,
Inc. v. Exch. Traded Managers Grp., LLC, 431 F. Supp. 3d 176, 252 (S.D.N.Y. 2019) (quoting
Peter R. Friedman, Ltd. v. Tishman Speyer Hudson Ltd. P’ship, 107 A.D.3d 569, 570 (1st Dep’t
2013)). But it includes promises that a “reasonable person in the position of the promisee would
be justified in understanding were included” in the contract and, when the contract involves the
exercise of discretion, a promise “not to act arbitrarily or irrationally in exercising that
discretion.” Dalton v. Educ. Testing Serv., 87 N.Y.2d 384, 389 (1995) (citation omitted). The
elements of a claim of breach of the implied covenant are similar to those for a breach of a duty
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of care, in that it requires the existence of a duty, breach of that duty, causation, and damages.
See Washington v. Kellwood Co., No. 05 Civ. 10034 (DAB), 2009 WL 855652, at *6 (S.D.N.Y.
Mar. 24, 2009). “[S]ince there is a presumption that all parties act in good faith, the burden of
proving a breach of the covenant of good faith and fair dealing is on the person asserting the
absence of good faith.” Tractebel Energy Mktg., Inc. v. AEP Power Mktg., Inc., 487 F.3d 89, 98
(2d Cir. 2007) (quoting 23 Williston on Contracts § 63:22 (4th ed. 2006)).
However, where the breach of that implied duty arises from a breach of the underlying
contract, it does not create a freestanding cause of action. See e.g., Cruz v. FXDirectDealer,
LLC, 720 F.3d 115, 125 (2d Cir. 2013); Harris v. Provident Life & Accident Ins. Co., 310 F.3d
73, 81 (2d Cir. 2002). “New York law does not treat a breach of the covenant of good faith and
fair dealing claim as one that is separate from a breach of contract claim where the claims are
based on the same facts.” Giller v. Oracle USA, Inc., 512 F. App’x 71, 73 (2d Cir. 2013)
(summary order). And where a claim for breach of the implied covenant is duplicative of a breachof-contract claim, the former is to be dismissed. See Deutsche Bank Nat’l Tr. Co. v. Quicken
Loans Inc., 810 F.3d 861, 869 (2d Cir. 2015). Such “claims are duplicative when both ‘arise
from the same facts and seek the identical damages for each alleged breach.’” Id. (quoting Amcan
Holdings, Inc. v. Canadian Imperial Bank of Com., 70 A.D.3d 423, 426 (1st Dep’t 2010)); see
Fleisher v. Phoenix Life Ins. Co., 858 F. Supp. 2d 290, 299 (S.D.N.Y. 2012) (dismissing breach
of implied covenant of good faith and fair dealing where a breach of contract claim “based upon
the same facts” was also pled); ICD Holdings S.A. v. Frankel, 976 F. Supp. 234, 243–44
(S.D.N.Y. 1997) (“A claim for breach of the implied covenant will be dismissed as redundant
where the conduct allegedly violating the implied covenant is also the predicate for breach of
covenant of an express provision of the underlying contract.” (citation omitted)).
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B.
Discussion
Elias argues that dismissal of the CCR Parties’ claim for breach of the implied covenant is
required because that claim is duplicative of the CCR Parties’ breach-of-contract claims, and in
fact rests on a contract theory the Court has already rejected. See Elias Mem. at 2–3; Elias Reply
at 2–3. The CCR Parties respond that their claim for breach of the implied covenant rests on
facts separate from those on which their breach-of-contract claims were based. See CCR Opp’n
at 1–2. The Court holds, with Elias, that the CCR Parties’ claim for breach of the implied
covenant is duplicative of their claim for a breach of contract, which the Court has rejected. As a
result, the Court grants Elias’s motion for summary judgment as to that claim.
In the CAC, the CCR Parties do not specify which allegations pertain to its claim for
breach of the implied covenant. Instead, the CAC states that, as to that count, the CCR Parties
“adopt and incorporate by reference the preceding allegations in extenso as though fully set forth
herein.” CAC ¶¶ 112–13. In their response to Elias’s present motion, the CCR Parties clarify
that the following allegations support that claim:
Elias used the extensive due diligence period to aggravate the direness of CCRDG’s
economic situation. Elias then obligated CCRDG to turn over the formulae for
Coco Rico before closing so that Elias possessed one of CCRDG’s key assets before
paying any significant consideration. Those facts forced Plaintiffs to allow the
closing [following the 2015 APA] to go forward without the $8.5 million for the
extinguishment of the debt being paid.
CCR Opp’n at 1 (citing CAC ¶¶ 34, 38–56, 62–64). As a result, “Elias managed to get out of
paying the $8.5 million CCRDG owed CCR International at the closing [of the 2015 APA]
because CCRDG could not afford further delay.” Id. at 2 (citing CAC ¶ 39). When Elias did so,
the CCR Parties argue, it defeated the CCR Parties’ “belie[f] that Elias would keep its promise to
release and extinguish the debt that CCRDG owed to CCR International,” despite it being
“reasonable for Plaintiffs to understand that Elias would extinguish a debt that it stated three
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times that it would extinguish.” Id. at 2; see also id. at 3 (“Plaintiffs reasonably expected to be
paid. Elias breached the covenant of good faith and fair dealing by not paying them.”). The
CCR Parties do not cite any evidence in support of these propositions. They rely instead on the
allegations in the CAC.
Even if the CCR Parties’ mere allegations, rather than evidence, could, in theory, defeat
Elias’s motion at this late stage of the litigation, see Wang v. Hearst Corp., 877 F.3d 69, 76 (2d
Cir. 2017) (“[T]he mere existence of some alleged factual dispute between the parties will not
defeat an otherwise properly supported motion for summary judgment; the requirement is that
there be no genuine issue of material fact.” (quoting Anderson, 477 U.S. at 248)), those
allegations are not up to that task here. That is because they depend entirely on the CCR Parties’
rejected breach-of-contract theory. The CCR Parties’ opposition contends that Elias used sharpelbowed tactics “to get out of” paying CCR $8.5 million, despite Elias having “stated three
times”—i.e., in the Assignment Agreement, Option Agreement, and 2015 APA—that it would
do so. CCR Opp’n at 1–2. But the Court has already held that Elias, in fact, did not so promise.
In 2013, it bought, from CCR, CCR’s rights to receive payments from CCRDG, which CCRDG
previously had owed to CCR. See CCR I, 2020 WL 7629325, at *11–12. When Elias later agreed
to “release and extinguish” CCRDG’s $8.5 million debt, it thus agreed only to release CCRDG’s
debt to Elias—which it did—not to both release that debt and then pay CCR the same amount in
cash. See id. at *12 (“[W]hen Elias bought the Coco Rico assets in April 2015, there was no debt
to CCR for Elias to release or extinguish.”); 2015 APA § 2.04(a) (Elias must “release and
extinguish all of the purchase price obligations of Seller [i.e., CCRDG] to Buyer [i.e., Elias],”
without reference to obligations to CCR.).
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The CCR Parties’ claim for breach of the implied covenant is thus duplicative of their
previously dismissed breach-of-contract claim. Like the latter claims, this claim rests on the
proposition that Elias promised to pay CCR $8.5 million, but failed to do so. “New York law, as
discussed above, does not recognize a separate cause of action for breach of the implied covenant
of good faith and fair dealing when a breach of contract claim, based upon the same facts, is also
pled.” Harris, 310 F.3d at 81. Notably, too, the CCR Parties seek the same damages on their
claim for breach of the implied covenant as they did for their rejected breach-of-contract claim:
$8.5 million. That also counsels finding the claims redundant. See, e.g., Benihana of Tokyo,
LLC v. Angelo, Gordon & Co., L.P., 259 F. Supp. 3d 16, 37 (S.D.N.Y. 2017) (dismissing
implied-covenant claim as duplicative where plaintiff sought “identical damages” as under
breach-of-contract claim); Amcan Holdings, 70 A.D.3d at 426 (same); Deer Park Enters., LLC v.
Ail Sys., Inc., 57 A.D.3d 711, 712 (2d Dep’t 2008) (“A cause of action to recover damages for
breach of the implied covenant of good faith and fair dealing cannot be maintained where the
alleged breach is intrinsically tied to the damages allegedly resulting from a breach of the
contract.” (cleaned up)).
The CCR Parties now frame Elias’s alleged duty to pay CCR $8.5 million as based
on their “belie[f]” and “understand[ing]” about Elias’s obligations, rather than on any specific
contract term. CCR Opp’n at 2 (conceding that the “assignment agreement did not expressly
forbid Elias to forgo paying the amount agreed to extinguish the debt”). But such expectations
cannot create an $8.5 million obligation out of whole cloth. “[T]he covenant of good faith and
fair dealing . . . cannot be construed so broadly as effectively to nullify other express terms of a
contract, or to create independent contractual rights.” Peter R. Friedman, 107 A.D.3d at 570
(quoting Fesseha v. TD Waterhouse Inv. Servs., 305 A.D.2d 268, 268 (1st Dep’t 2003)); see
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INTL FCStone Mkts., LLC v. Corrib Oil Co., 172 A.D.3d 492, 493 (1st Dep’t 2019) (“Nor can
[defendant’s] express obligations be varied by the assertion of a claim of breach of the covenant
of good faith and fair dealing.”). Given the Court’s prior holding, the CCR Parties’ claim for
breach of the implied covenant impermissibly seeks to impose another, multi-million duty on
Elias, which contradicts the clear terms of the parties’ many agreements.1 And to the extent the
CCR Parties argue that their claim for breach of the implied covenant stems from Elias’s
exertion of pressure on CCRDG “to get out of” paying the $8.5 million, that claim merely
“supplements [their] breach of contract claim with . . . allegations that defendants acted in bad
faith and with intentional ill-will when breaching the [c]ontract.” Charter Contracting Co. v.
Orange & Rockland Utils., No. 20 Civ. 795 (VB), 2020 WL 7774337, at *6 (S.D.N.Y.
Dec. 30, 2020). Such allegations do not make their implied-covenant non-duplicative of their
already-dismissed breach-of-contract claims. Id.
CONCLUSION
For the foregoing reasons, the Court grants Elias’s motion for summary judgment seeking
to dismiss the CCR Parties’ sole remaining claim, for the breach of the implied covenant of good
faith and fair dealing.
As a result, the only claims remaining in this case are Elias’s counterclaims, which Elias
has represented it intended to voluntarily dismiss if the Court dismissed the CCR Parties’
remaining claim. Dkt. 255 at 2. The Court directs Elias to so move by April 12, 2021, and for
the parties to submit a joint letter, by three days later, i.e., April 15, 2021, with their views as
whether, with all claims dismissed, this case may now be closed.
1
That conclusion is reinforced by the CCR Parties’ attempt, in their opposition on the pending
motion, to relitigate a dispute from the first round of summary judgment briefing, about the
interpretation of the term “extinguish.” See CCR Opp’n at 2–3.
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SO ORDERED.
PaJA.�
__________________________________
PAUL A. ENGELMAYER
United States District Judge
Dated: April 5, 2021
New York, New York
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