PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
MEMORANDUM
TO: Carlos Espinoza, Lead Associate, Litigation, Calderwood & Harkness LLP
FROM: Hannah Brinkley, Working Associate, Litigation, Calderwood & Harkness LLP
DATE: December 10, 2024
RE: Research Memorandum — Implied Covenant of Good Faith and Fair Dealing: Analysis of Triton Harbor's Third Counterclaim
MATTER: Belmont Ridge Bank NA v. Triton Harbor Industries, LLC, Marcus J. Kappel, and Elaine D. Kappel, Index No. 654871/2024, New York Supreme Court, New York County, Commercial Division (Hon. Althea Marchetti)
MATTER NO.: 1022-00005
I. Introduction and Summary of Assignment
You have asked me to analyze the viability of Triton Harbor Industries, LLC's ("Triton Harbor") third counterclaim against Belmont Ridge Bank NA ("BRB") for breach of the implied covenant of good faith and fair dealing. This memorandum sets forth my research findings and recommendations.
Triton Harbor's counterclaim, filed on October 18, 2024, alleges that BRB breached the implied covenant of good faith and fair dealing in three principal respects. First, Triton Harbor alleges that BRB negotiated and executed the Forbearance and Modification Agreement dated October 6, 2023 (the "Forbearance Agreement") while secretly intending to accelerate the indebtedness and exit the lending relationship entirely, as allegedly evidenced by an internal memorandum authored by BRB's Executive Vice President and Chief Credit Officer, Philip Aaronson, dated August 22, 2023 (the "Aaronson Memorandum"). Second, Triton Harbor alleges that BRB extracted additional collateral — specifically, equipment leases valued at approximately $2,300,000 and the personal residence of Marcus J. and Elaine D. Kappel at 14 Birchmont Lane, Westport, Connecticut, valued at approximately $3,100,000 — and expanded the scope of the existing personal guaranties (amending Marcus J. Kappel's guaranty from a limited guaranty of $4,500,000 to an unlimited personal guaranty, and obtaining a new unlimited personal guaranty from Elaine D. Kappel) without any genuine intent to continue the lending relationship beyond the forbearance period. Third, Triton Harbor alleges that BRB issued its Notice of Default and Acceleration on April 15, 2024, declaring the entire outstanding balance of $17,456,212 due and payable immediately upon the expiration of the 180-day forbearance period, in furtherance of a preconceived plan to exit the relationship.
Summary Conclusion: Under well-settled New York law, the implied covenant of good faith and fair dealing cannot be used to impose obligations that are inconsistent with the express terms of a contract. BRB's acceleration of the outstanding indebtedness following Triton Harbor's failure to cure its covenant defaults — specifically, Triton Harbor's Fixed Charge Coverage Ratio ("FCCR") stood at 0.94x as of March 31, 2024, well below the required minimum of 1.20x set forth in the Forbearance Agreement as a covenant-cure milestone — was an exercise of express contractual rights under the Forbearance Agreement. The counterclaim is legally deficient and should be targeted in a motion for summary judgment. However, I must note that certain factual allegations advanced by Triton Harbor — particularly those surrounding the Aaronson Memorandum and the alleged oral representations made by BRB's Special Assets Group personnel during the September 12, 2023 in-person meeting — create a colorable narrative that requires careful factual rebuttal. This memorandum addresses both the legal analysis and the strategic considerations for building that factual record.
II. Factual Background Relevant to the Implied Covenant Claim
The following factual summary is drawn from the pleadings, the documents produced to date in discovery, and the terms of the operative credit agreements.
A. The Original Credit Facility
On June 15, 2021, BRB extended credit to Triton Harbor pursuant to a Credit Agreement (the "Original Credit Agreement") consisting of two facilities: (i) Term Loan A in the original principal amount of $14,000,000, with an 84-month term and bearing interest at SOFR plus 275 basis points; and (ii) a Revolving Credit Facility in the maximum principal amount of $8,000,000, maturing June 15, 2026, and bearing interest at SOFR plus 250 basis points. The total committed facilities under the Original Credit Agreement were $22,000,000.
The facilities were secured by a first-priority lien on substantially all assets of Triton Harbor, including marine terminal equipment, accounts receivable, inventory, and general intangibles, as well as a first mortgage on Triton Harbor's Long Island City terminal facility located at 50-22 Borden Avenue, Long Island City, New York 11101 (the "LIC Terminal Facility"). At origination, the collateral was appraised by Ridgeline Appraisal Group, Inc. at an aggregate value of $18,700,000.
The Original Credit Agreement contained the following financial covenants, tested quarterly: (i) a minimum FCCR of 1.20x; (ii) a maximum Total Leverage Ratio of 3.50x; and (iii) minimum Liquidity of $2,000,000. In connection with the Original Credit Agreement, Marcus J. Kappel, the managing member and principal of Triton Harbor, executed a limited personal guaranty in the amount of $4,500,000 (the "Original Kappel Guaranty"). Elaine D. Kappel, his spouse, was not a party to the Original Kappel Guaranty or any other guarantee of Triton Harbor's obligations at origination.
B. Deterioration and Transfer to Special Assets Group
Beginning in the latter half of 2022 and accelerating into early 2023, Triton Harbor experienced significant operational and financial deterioration. The company lost two major contracts: the Port of Bridgehaven municipal dredging and terminal services contract, which had generated approximately $12,000,000 in annual revenue, and the Newark Bay maintenance contract, which had accounted for approximately $7,500,000 in annual revenue. The loss of these contracts caused Triton Harbor's annualized revenue to decline to approximately $48,000,000, down from substantially higher levels in prior periods.
By the first quarter of 2023, Triton Harbor's trailing twelve-month ("TTM") EBITDA had fallen to $5,100,000, compared with $9,400,000 for fiscal year 2022. This decline precipitated breaches of the Original Credit Agreement's financial covenants: the FCCR dropped to 0.87x, well below the 1.20x minimum, and the Total Leverage Ratio rose to 4.92x, in excess of the 3.50x maximum.
On March 8, 2023, BRB's internal credit review committee conducted a review of the Triton Harbor credit and downgraded it to "Substandard" (Risk Rating 7 on BRB's internal 10-point scale). In connection with the downgrade, the account was transferred from BRB's Relationship Management Group to its Special Assets Group ("SAG"), under the supervision of Derek Whitmore, Senior Vice President. At the time of transfer, the outstanding balances under the credit facilities were as follows: Term Loan A: $11,375,000; Revolving Credit Facility: $6,200,000; total outstanding indebtedness: $17,575,000.
C. The Aaronson Memorandum
On August 22, 2023 — approximately five weeks before BRB commenced forbearance negotiations with Triton Harbor — Philip Aaronson, Executive Vice President and Chief Credit Officer of BRB, sent an internal memorandum to Derek Whitmore, with a copy to Margaret Linden, Senior Vice President and General Counsel. The memorandum was titled "Triton Harbor — Recommended Disposition Strategy."
The Aaronson Memorandum directed the SAG to "pursue a structured exit from the Triton Harbor relationship within 120 days." The memorandum further stated that "further extensions of credit are not contemplated under any workout scenario" and discussed various strategies for maximizing BRB's recovery on the credit, including the extraction of additional collateral and expanded personal guaranties from the Kappels.
This memorandum is the centerpiece of Triton Harbor's theory that BRB entered the Forbearance Agreement in bad faith — that is, with a pre-formed intent to accelerate the indebtedness and exit the relationship regardless of Triton Harbor's performance during the forbearance period. The memorandum was produced by BRB in discovery in response to Triton Harbor's first request for production of documents and has been marked as Trial Exhibit D-47.
D. Pre-Forbearance Communications
Following the transfer of the account to SAG, several communications occurred between BRB's SAG personnel and the Kappels that are relevant to Triton Harbor's implied covenant claim.
On September 12, 2023, an in-person meeting took place at BRB's offices at 1200 Avenue of the Americas, 38th Floor, New York, New York. In attendance were Derek Whitmore and Joanna Reeves (Vice President, SAG) on behalf of BRB, and Marcus J. Kappel and Elaine D. Kappel on behalf of Triton Harbor. According to the Kappels' sworn interrogatory responses and Triton Harbor's verified counterclaim, during this meeting Whitmore made oral representations to the effect that BRB was "committed to the long-term relationship" with Triton Harbor and expressed BRB's willingness to "seriously consider" providing a new $6.5 million revolving credit facility upon the successful completion of the forbearance period. BRB has not admitted the substance of these alleged oral statements; the characterization of the meeting remains in dispute.
On September 18, 2023, Joanna Reeves sent an email to Marcus Kappel, which stated in relevant part: "We are optimistic about a path forward and believe this forbearance sets the stage for a renewed credit relationship." This email has been produced in discovery and marked as Trial Exhibit D-52.
On September 29, 2023, Reeves internally forwarded to Whitmore a draft term sheet for a potential new $6.5 million revolving credit facility for Triton Harbor, noting in the cover email that the term sheet was "for discussion purposes only — not approved." This internal communication has also been produced in discovery and marked as Trial Exhibit D-55. It is unclear from the record whether this draft term sheet was ever shared with Triton Harbor or the Kappels.
E. The Forbearance and Modification Agreement (October 6, 2023)
On October 6, 2023, BRB and Triton Harbor, together with Marcus J. Kappel and Elaine D. Kappel, executed the Forbearance and Modification Agreement. The key terms of the Forbearance Agreement are as follows:
Forbearance Period. BRB agreed to forbear from exercising any and all default remedies under the Original Credit Agreement for a period of 180 days, commencing on October 6, 2023, and expiring on April 3, 2024. During the forbearance period, BRB agreed not to accelerate the indebtedness, commence foreclosure proceedings, or exercise any other remedies available to it under the Original Credit Agreement or applicable law.
Monthly Payments. Triton Harbor was obligated to make monthly payments of $125,000, for a total of $750,000 over the six-month forbearance period. These payments were in addition to regularly scheduled debt service.
Additional Collateral. Triton Harbor pledged as additional collateral certain equipment leases valued at approximately $2,300,000. In addition, Marcus J. Kappel and Elaine D. Kappel pledged their personal residence at 14 Birchmont Lane, Westport, Connecticut, appraised at approximately $3,100,000.
Expanded Guaranties. Marcus J. Kappel's existing limited personal guaranty of $4,500,000 was amended to an unlimited personal guaranty. Elaine D. Kappel executed a new unlimited personal guaranty of Triton Harbor's obligations under the credit facilities.
Forbearance Fee. Triton Harbor paid a forbearance fee of $87,500, equal to 0.50% of the approximately $17,500,000 in outstanding indebtedness at the time of the agreement.
Covenant-Cure Milestones. The Forbearance Agreement required Triton Harbor to satisfy certain covenant-cure milestones by the expiration of the forbearance period, including achieving an FCCR of at least 1.20x — the same minimum threshold as under the Original Credit Agreement.
Financial Advisor. As a condition of the Forbearance Agreement, Triton Harbor engaged Mercer Tidwell & Associates LLC, with Raymond Mercer as Managing Director, as its financial advisor and agreed to provide BRB with monthly financial reporting during the forbearance period.
Two provisions of the Forbearance Agreement are of particular significance to the implied covenant analysis:
Section 9(c) — "No Commitment to Extend Credit." This provision stated:
"Nothing herein shall constitute or be deemed to constitute a commitment, agreement, or obligation on the part of Lender to extend additional credit, modify existing facilities, or renew any credit facility. Lender reserves all rights with respect to any future credit decisions, and Borrower acknowledges that Lender has made no representations, promises, or assurances regarding future credit availability."
Section 12(a) — Integration Clause. The Forbearance Agreement contained a full integration and merger clause, which provided that the written agreement constituted the entire agreement between the parties with respect to its subject matter and superseded all prior and contemporaneous oral or written representations, understandings, or agreements.
F. Forbearance Expiration and Acceleration
During the 180-day forbearance period, Triton Harbor made all six monthly payments of $125,000, for a total of $750,000. Triton Harbor also pledged the additional collateral required by the Forbearance Agreement. However, as of March 31, 2024, Triton Harbor's FCCR stood at 0.94x — below the 1.20x covenant-cure milestone required by the Forbearance Agreement.
On April 3, 2024, the forbearance period expired. On April 15, 2024 — twelve days after expiration — BRB issued its Notice of Default and Acceleration, declaring the entire outstanding balance of $17,456,212 due and payable immediately. The accelerated amount consisted of the following: Term Loan A principal of $10,625,000; Revolving Credit Facility outstanding balance of $6,200,000; accrued and unpaid interest of $487,322; and late fees and default interest of $143,890.
On May 20, 2024, BRB commenced foreclosure proceedings on the LIC Terminal Facility. An updated collateral appraisal prepared by Ridgeline Appraisal Group, Inc. in September 2023 valued the LIC Terminal Facility at $11,200,000 — a decline of $7,500,000, or approximately 40.1%, from the origination appraisal of $18,700,000. Including the additional collateral pledged under the Forbearance Agreement (equipment leases and the Kappel residence), the estimated total collateral value was approximately $16,600,000, resulting in an estimated deficiency of $856,212 before costs of sale and other enforcement expenses.
III. Legal Framework: The Implied Covenant of Good Faith and Fair Dealing Under New York Law
A. General Principles
It is a well-established principle of New York contract law that every contract contains an implied covenant of good faith and fair dealing. See Dalton v. Educ. Testing Serv., 87 N.Y.2d 384, 389 (1995) ("Implicit in all contracts is a covenant of good faith and fair dealing in the course of contract performance."); 511 W. 232nd Owners Corp. v. Jennifer Realty Co., 98 N.Y.2d 144, 153 (2002). The covenant encompasses "a pledge 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." Dalton, 87 N.Y.2d at 389 (internal quotation marks omitted); accord Moran v. Erk, 11 N.Y.3d 452, 457 (2008).
The implied covenant is a creature of contract law, not tort law. It arises from the contractual relationship between the parties and is limited by the terms of the contract from which it derives. See Murphy v. Am. Home Prods. Corp., 58 N.Y.2d 293, 304 (1983). The covenant serves as a gap-filling mechanism: it "can only impose an obligation consistent with other mutually agreed upon terms in the contract" and "cannot be construed so broadly as effectively to nullify other terms of a contract, or to create independent contractual rights." Broder v. Cablevision Sys. Corp., 418 F.3d 187, 198-99 (2d Cir. 2005) (applying New York law).
This last principle is of paramount importance to the present analysis. The implied covenant of good faith and fair dealing is not a free-floating obligation untethered to the express terms of the parties' agreement. Rather, it is an interpretive tool that gives effect to the reasonable expectations of the parties as expressed in the contract itself. Where the contract speaks clearly and unambiguously on a subject, the implied covenant cannot be invoked to override those express terms. See 511 W. 232nd Owners Corp., 98 N.Y.2d at 153; M/A-COM Sec. Corp. v. Galesi, 904 F.2d 134, 136 (2d Cir. 1990) (under New York law, the implied covenant "cannot be used to create new contractual obligations not contemplated by the parties").
B. The Cardinal Rule: The Implied Covenant Cannot Override Express Contract Terms
The cardinal rule governing the implied covenant under New York law is that it cannot be used to negate or override express contractual provisions. This principle operates in two important ways.
First, a party cannot maintain a claim for breach of the implied covenant where the claim is premised on the same facts as a breach of contract claim, or where the implied covenant would effectively negate an express contractual right. The New York Court of Appeals has consistently held that a cause of action for breach of the implied covenant that is duplicative of a breach of contract cause of action must be dismissed. See Harris v. Provident Life & Acc. Ins. Co., 310 F.3d 73, 81 (2d Cir. 2002) (applying New York law and holding that an implied covenant claim that "arises from the same facts" as a breach of contract claim and "seeks the identical damages" is "redundant" and must be dismissed); New York Univ. v. Cont'l Ins. Co., 87 N.Y.2d 308, 319-20 (1995) (dismissing implied covenant claim as duplicative where it was "intrinsically tied" to the breach of contract claim).
Second, where a contract expressly grants a party the right to take a particular action, the exercise of that right cannot constitute a breach of the implied covenant. The Appellate Division, First Department, has been emphatic on this point: "The implied covenant of good faith and fair dealing cannot negate a term of a contract that is expressly agreed upon. If the agreement expressly permits the challenged conduct, the claim for breach of the covenant must be dismissed." Aventine Inv. Mgmt., Inc. v. Canadian Imperial Bank of Commerce, 265 A.D.2d 513, 514 (1st Dep't 1999); see also Emigrant Bank v. Ostrander National Bank Real Estate Sec. Inc., 122 A.D.3d 556, 557 (1st Dep't 2014) (dismissing implied covenant claim where the contract "explicitly authorized" the conduct complained of); Logan Advisors, LLC v. Patriarch Partners, LLC, 63 A.D.3d 440, 443 (1st Dep't 2009) (the "implied covenant does not extend so far as to undermine a party's general right to act on its own interests in a way that may incidentally lessen the other party's anticipated fruits from the contract") (internal quotation marks omitted).
The analytical framework is therefore straightforward: the threshold question in evaluating Triton Harbor's implied covenant claim is whether the Forbearance Agreement expressly authorized BRB's challenged conduct — namely, the acceleration of the outstanding indebtedness following Triton Harbor's failure to satisfy the covenant-cure milestones at the expiration of the forbearance period. If the answer is yes — and, as demonstrated below, it is — the implied covenant claim fails as a matter of law.
C. Application in the Lender-Borrower Context
New York courts have applied these principles with particular rigor in the lender-borrower context. The case law is clear on several points directly relevant to BRB's defense.
A lender's exercise of contractual acceleration rights does not breach the implied covenant. Where a credit agreement grants the lender the right to accelerate the indebtedness upon a default by the borrower, the lender's exercise of that right is not subject to an implied duty of reasonableness or good faith. See Sterling Nat'l Bank v. Quill Thackeray CPAs LLP, 9 A.D.3d 300, 301 (1st Dep't 2004); Brinkmann v. Urban Archaeology Ltd., 285 A.D.2d 433, 433-34 (1st Dep't 2001). Courts have recognized that a lender, like any commercial party, is entitled to act in its own economic interest, and the exercise of a contractually authorized remedy does not become actionable merely because it is adverse to the borrower.
A lender has no implied duty to extend, renew, or restructure credit absent an express contractual commitment to do so. This principle is firmly established in New York law. See Nat'l Westminster Bank USA v. Ross, 130 B.R. 656, 679 (S.D.N.Y. 1991) (applying New York law) ("A bank has no duty to make or continue making loans, absent a contractual obligation to do so."); In re Clark, 738 F.2d 869, 872 (7th Cir. 1984) (Posner, J.) (noting that "a bank is not obligated to lend money" absent an express commitment). The implied covenant of good faith and fair dealing cannot be stretched to impose upon a lender an obligation to provide future financing that the lender never contractually agreed to provide.
The inclusion of a "no commitment to extend credit" disclaimer reinforces the borrower's inability to claim an expectation of future lending as a "fruit" of the contract. Here, Section 9(c) of the Forbearance Agreement expressly provided that nothing in the agreement "shall constitute or be deemed to constitute a commitment, agreement, or obligation on the part of Lender to extend additional credit, modify existing facilities, or renew any credit facility." Such disclaimers have been upheld by New York courts as effective barriers to implied covenant claims premised on alleged expectations of continued lending. See, e.g., Bankers Trust Co. v. Bernstein, 169 A.D.2d 400, 401 (1st Dep't 1991) (lender's refusal to extend further credit did not violate implied covenant where credit agreement contained no commitment to do so).
The implied covenant does not impose a duty of altruism or require a lender to subordinate its own economic interests to those of the borrower. Courts have repeatedly rejected the notion that a lender entering into a forbearance or workout arrangement impliedly commits to prioritizing the borrower's survival over its own recovery. See Kham & Nate's Shoes No. 2, Inc. v. First Bank of Whiting, 908 F.2d 1351, 1357 (7th Cir. 1990) (Easterbrook, J.) ("[L]enders are not fiduciaries of their borrowers."). In the forbearance context specifically, courts have recognized that a lender's willingness to forbear from exercising default remedies for a limited period is an act of contractual grace, not an implied promise of indefinite forbearance or future accommodation. The forbearance agreement defines the scope of the lender's commitment, and the borrower is not entitled to read into the arrangement obligations that the lender never assumed.
D. The "Subterfuge" or "Bad Faith Motive" Exception — and Its Limits
Triton Harbor's counterclaim will likely rest on the argument that even if BRB had the express contractual right to accelerate the indebtedness, it exercised that right in bad faith because it never intended to maintain the lending relationship and entered the Forbearance Agreement solely as a vehicle to extract additional collateral and expanded guaranties from the Kappels. This argument invokes what might be called the "subterfuge" or "bad faith motive" exception to the general rule that the exercise of an express contractual right cannot breach the implied covenant.
There is a narrow line of New York authority recognizing that, under certain circumstances, the exercise of an express contractual right may breach the implied covenant where the right is exercised arbitrarily, irrationally, or in bad faith to deprive the counterparty of the benefit of the bargain. This line of authority arises primarily in the context of discretionary contract provisions — i.e., provisions that grant one party discretion to make a determination or take an action that affects the other party's rights or obligations. See Dalton v. Educ. Testing Serv., 87 N.Y.2d 384, 389-90 (1995) (holding that ETS had an implied obligation to exercise its discretion to cancel a test score in good faith); Richbell Info. Servs., Inc. v. Jupiter Partners, L.P., 309 A.D.2d 288, 302 (1st Dep't 2003) (noting that the implied covenant may be breached where one party exercises a contractual right "as part of a scheme to deprive the other of the benefit of the bargain").
However, these authorities must be carefully distinguished from the present case. In Dalton, the contractual provision at issue — ETS's right to cancel a test score — was inherently discretionary and was not conditioned upon the satisfaction of objective criteria. The Court of Appeals held that this discretion was subject to the implied obligation of good faith because ETS's exercise of the discretion was the only mechanism by which the plaintiff could receive the "fruits" of the contract (i.e., a valid test score). Similarly, in Richbell, the First Department found a potential implied covenant violation where the defendants allegedly exercised contractual rights "as part of a scheme orchestrated by the defendants to deprive the plaintiffs of the benefits of the parties' joint venture agreement," id. at 302 — a situation involving alleged manipulation of complex, multi-party commercial arrangements.
Here, by contrast, BRB's right to accelerate the indebtedness upon expiration of the forbearance period was not discretionary in the relevant sense. The Forbearance Agreement set forth objective, measurable covenant-cure milestones — specifically, an FCCR of at least 1.20x — and Triton Harbor failed to meet them. As of March 31, 2024, Triton Harbor's FCCR was 0.94x, a full 26 basis points below the required minimum. BRB's acceleration was triggered by a mathematically determinable covenant failure, not by the exercise of unguided subjective discretion. The cases recognizing an implied covenant limitation on the exercise of discretionary contractual rights simply do not apply where, as here, the contractual trigger is an objective condition precedent that the counterparty failed to satisfy.
Moreover, New York courts have consistently held that a party's subjective motive for exercising a contractual right is generally irrelevant where the right is exercised in accordance with the express terms of the contract. See Aventine Inv. Mgmt., 265 A.D.2d at 514; see also Van Valkenburgh, Nooger & Neville, Inc. v. Hayden Publ'g Co., 30 N.Y.2d 34, 45 (1972) (rejecting inquiry into motive where party acted within its contractual rights). The law does not require a contracting party to harbor benevolent intentions toward its counterparty; it requires only that the party honor the terms of the contract as written.
The Aaronson Memorandum, while potentially damaging in the context of Triton Harbor's separate fraud claims, does not transform BRB's contractually authorized acceleration into a breach of the implied covenant. Even if the memorandum conclusively demonstrated that BRB intended, at the time it entered the Forbearance Agreement, to accelerate the indebtedness upon the expiration of the forbearance period, that intent would be legally irrelevant to the implied covenant analysis so long as BRB honored the terms of the Forbearance Agreement during its pendency — which, as discussed below, it did.
E. Relationship Between the Implied Covenant Claim and the Fraud Claims
Under New York law, the implied covenant claim must be analyzed independently from the fraudulent inducement (First Counterclaim) and negligent misrepresentation (Second Counterclaim) counterclaims. These causes of action rest on distinct legal theories, even though they share overlapping factual predicates.
The fraud claims allege that BRB made misrepresentations — specifically, the alleged oral representations at the September 12, 2023 meeting and the Reeves email of September 18, 2023 — that induced Triton Harbor and the Kappels to enter the Forbearance Agreement and to pledge additional collateral and expanded guaranties. These claims sound in tort and require proof of scienter, justifiable reliance, and damages. The implied covenant claim, by contrast, sounds in contract and alleges bad-faith performance of the Forbearance Agreement itself; it does not require proof of misrepresentation, only that BRB performed its contractual obligations in a manner that deprived Triton Harbor of the "fruits" of the contract.
Despite these doctrinal differences, the practical overlap between the claims creates a strategic risk for BRB. If the fraud claims survive — for example, because a trier of fact credits the Kappels' testimony about the alleged oral representations at the September 12 meeting and finds that the Aaronson Memorandum demonstrates scienter (i.e., that BRB made representations it knew to be false) — the factual findings could color the implied covenant analysis. A jury or judge that concludes BRB acted fraudulently in inducing the Forbearance Agreement might be predisposed to view BRB's subsequent acceleration as a further act of bad faith, notwithstanding the legal distinction between the two theories.
For this reason, the implied covenant claim should be attacked on pure legal grounds — i.e., on the basis that the express terms of the Forbearance Agreement bar the claim as a matter of law — to avoid creating a platform for Triton Harbor to relitigate its fraud allegations under a different label. A summary judgment motion on the implied covenant claim that focuses on the contract's express terms, rather than on disputed questions of BRB's subjective intent, is far more likely to succeed and carries the additional benefit of narrowing the issues for trial.
IV. Application to Triton Harbor's Counterclaim
A. Triton Harbor's Specific Allegations
As pleaded in the verified counterclaim filed October 18, 2024, Triton Harbor alleges that BRB breached the implied covenant of good faith and fair dealing in the following four respects:
1. Pre-Formed Intent to Accelerate. BRB entered the Forbearance Agreement while secretly intending to accelerate the indebtedness and exit the lending relationship, as evidenced by the Aaronson Memorandum of August 22, 2023, which directed the SAG to "pursue a structured exit from the Triton Harbor relationship within 120 days" and stated that "further extensions of credit are not contemplated under any workout scenario." Triton Harbor alleges that BRB's execution of the Forbearance Agreement was a sham designed to obtain enhanced collateral and guaranty protections in advance of a pre-determined acceleration.
2. Extraction of Additional Collateral and Guaranties Under False Pretenses. BRB extracted additional collateral (equipment leases valued at $2,300,000 and the Kappel residence valued at $3,100,000) and expanded personal guaranties (amending Marcus J. Kappel's guaranty from a limited $4,500,000 to unlimited and obtaining a new unlimited guaranty from Elaine D. Kappel) without any genuine intent to continue the lending relationship or to provide future financing. Triton Harbor alleges that the additional collateral and guaranties were sought solely to enhance BRB's recovery position in a planned liquidation.
3. Acceleration at First Available Opportunity. BRB accelerated the full outstanding balance of $17,456,212 on April 15, 2024, upon the first available opportunity following the expiration of the 180-day forbearance period, despite what Triton Harbor characterizes as "substantial compliance" with the Forbearance Agreement — specifically, Triton Harbor made all six monthly payments of $125,000 ($750,000 total) and pledged all required additional collateral. Triton Harbor alleges that BRB's immediate acceleration demonstrated that BRB never had any intention of continuing the relationship, even if Triton Harbor had substantially performed its obligations.
4. Foreclosure and Pursuit of Personal Assets. BRB commenced foreclosure on the LIC Terminal Facility on May 20, 2024, and is pursuing the Kappels' personal assets under the expanded unlimited guaranties obtained through what Triton Harbor characterizes as the bad-faith forbearance process.
B. BRB's Defenses — Express Contract Terms Bar the Claim
Each of Triton Harbor's allegations can be squarely addressed by reference to the express terms of the Forbearance Agreement and established New York law.
Section 9(c) — "No Commitment to Extend Credit" Disclaimer. The Forbearance Agreement expressly and unambiguously provided that nothing therein "shall constitute or be deemed to constitute a commitment, agreement, or obligation on the part of Lender to extend additional credit, modify existing facilities, or renew any credit facility." This provision negates, as a matter of law, any claimed expectation on Triton Harbor's part that the Forbearance Agreement carried with it an implicit promise of a renewed or continued lending relationship. The "fruit" that Triton Harbor bargained for was a 180-day forbearance from default remedies and an opportunity to cure its covenant defaults — not a commitment to future credit. Section 9(c) forecloses the argument that BRB deprived Triton Harbor of the benefit of its bargain by declining to extend new credit after the forbearance expired.
Under New York law, where the contract itself expressly disclaims an obligation, the implied covenant cannot be used to resurrect that obligation through the back door. See Broder, 418 F.3d at 198-99; Fesseha v. TD Waterhouse Inv. Servs., Inc., 305 A.D.2d 268, 269 (1st Dep't 2003). Triton Harbor cannot claim as a "reasonable expectation" something that the contract it signed expressly told it would not be provided.
Express Acceleration Rights. The Forbearance Agreement expressly provided that BRB could exercise all default remedies under the Original Credit Agreement upon expiration of the forbearance period if the covenant-cure milestones were not met. As of March 31, 2024 — the last measurement date before the April 3, 2024 forbearance expiration — Triton Harbor's FCCR was 0.94x, materially below the required 1.20x minimum. BRB's issuance of the Notice of Default and Acceleration on April 15, 2024, was an exercise of an express contractual right that was triggered by Triton Harbor's failure to satisfy an objective contractual condition. Under the authorities discussed in Section III above, the exercise of this right cannot constitute a breach of the implied covenant. See Aventine Inv. Mgmt., 265 A.D.2d at 514; Emigrant Bank, 122 A.D.3d at 557.
Integration Clause (Section 12(a)). The Forbearance Agreement contained a full integration and merger clause, which bars reliance on any prior or contemporaneous oral representations or understandings not contained in the written agreement. This provision is directly relevant to Triton Harbor's allegations concerning the September 12, 2023 in-person meeting, during which Whitmore allegedly represented that BRB was "committed to the long-term relationship" and would "seriously consider" a new $6.5 million revolving facility. It is equally relevant to the Reeves email of September 18, 2023, which expressed optimism about "a renewed credit relationship." Under New York law, a fully integrated agreement precludes extrinsic evidence of prior or contemporaneous representations that contradict or add to the terms of the written agreement. See Schron v. Veltran Sanders LLP, 20 N.Y.3d 430, 436 (2013); W.W.W. Assocs., Inc. v. Giancontieri, 77 N.Y.2d 157, 162-63 (1990). Triton Harbor's reliance on these extrinsic communications to establish the "fruits" of the Forbearance Agreement is barred by the integration clause.
Duplicativeness. Triton Harbor's implied covenant claim is duplicative of its fraudulent inducement claim. Both claims rest on the same core theory: that BRB acted with an undisclosed intent to exit the lending relationship and entered the Forbearance Agreement as a vehicle to extract additional collateral before accelerating. The implied covenant claim adds no independent contractual duty beyond those addressed by the fraud claim. Under Harris v. Provident Life & Acc. Ins. Co., 310 F.3d at 81, and New York University v. Continental Insurance Co., 87 N.Y.2d at 319-20, the implied covenant claim should be dismissed as duplicative. This is a well-recognized ground for dismissal in the Commercial Division, and courts in this jurisdiction routinely dismiss implied covenant claims where they are "intrinsically tied to the damages allegedly resulting from a breach of the contract." ICD Holdings S.A. v. Frankel, 976 F. Supp. 234, 243-44 (S.D.N.Y. 1997) (applying New York law).
C. Analysis of the "Fruits of the Contract" Argument
Triton Harbor will argue that the "fruits" of the Forbearance Agreement included not merely the 180-day standstill itself but an implicit expectation of a continued lending relationship if the forbearance milestones were substantially met. This argument must be anticipated and rebutted.
The "fruits" of the Forbearance Agreement, as defined by its express terms, were threefold: (i) a 180-day forbearance from the exercise of default remedies by BRB; (ii) an opportunity for Triton Harbor to cure its financial covenant defaults and restore compliance with the FCCR and other covenant requirements; and (iii) if the covenant-cure milestones were met, continued performance of the existing credit facilities — i.e., no acceleration of the indebtedness and no exercise of default remedies. Importantly, the "fruits" of the Forbearance Agreement did not include new credit, modified facilities, or any extension of the lending relationship beyond the existing facilities. Section 9(c) made this explicit.
BRB delivered the first "fruit" in full: it forbore from exercising any default remedies for the entire 180-day period. BRB did not accelerate the indebtedness, commence foreclosure, or take any enforcement action during the forbearance period. BRB accepted all six monthly payments of $125,000, totaling $750,000. BRB did not interfere with Triton Harbor's business operations. In short, Triton Harbor received the entire benefit it bargained for under the express terms of the Forbearance Agreement.
The second "fruit" — the opportunity to cure the covenant defaults — was likewise delivered. Triton Harbor had 180 days to bring its FCCR into compliance with the 1.20x minimum. It failed to do so. As of March 31, 2024, Triton Harbor's FCCR stood at 0.94x. The opportunity was provided; the cure was not achieved.
Triton Harbor's "substantial compliance" argument — that it made all required monthly payments, pledged all required collateral, and therefore substantially performed under the Forbearance Agreement — does not address the FCCR shortfall. The covenant-cure milestones were express conditions of the Forbearance Agreement, not aspirational targets or guidelines. The FCCR minimum of 1.20x was a specific, measurable financial test that Triton Harbor was required to satisfy as a condition of the forbearance's protective effect extending beyond the 180-day period. Triton Harbor's compliance with certain other provisions of the Forbearance Agreement does not excuse its failure to meet the FCCR milestone. Under New York law, where a contract conditions the continuation of certain rights upon the satisfaction of specific benchmarks, substantial compliance with other provisions does not excuse the failure to meet the condition. See Oppenheimer & Co. v. Oppenheim, Appel, Dixon & Co., 86 N.Y.2d 685, 690-91 (1995) (strict compliance with express conditions required absent evidence of waiver or estoppel).
Furthermore, Triton Harbor cannot claim that its "reasonable expectations" included a future credit extension that Section 9(c) specifically disclaimed. The law does not permit a party to invoke the implied covenant to create an entitlement to something the contract expressly says will not be provided. See Broder, 418 F.3d at 198-99. This principle is dispositive of Triton Harbor's theory that the forbearance was supposed to "set the stage" for a renewed credit relationship: whatever subjective expectations the Kappels may have harbored, the contract they signed unambiguously disclaimed any commitment to future lending.
D. The Aaronson Memorandum — Impact on Implied Covenant Analysis
Triton Harbor will rely heavily on the Aaronson Memorandum of August 22, 2023, as evidence that BRB's subjective intent at the time of contracting was to use the Forbearance Agreement as a vehicle to extract additional collateral and expanded guaranties before accelerating the indebtedness and exiting the relationship. The memorandum's instruction to "pursue a structured exit from the Triton Harbor relationship within 120 days" and its statement that "further extensions of credit are not contemplated under any workout scenario" are, admittedly, damaging documents that will resonate with a factfinder.
However, under New York law, the Aaronson Memorandum is legally irrelevant to the implied covenant analysis. The implied covenant of good faith and fair dealing focuses on whether the parties' contractual obligations were performed in good faith — that is, whether each party honored the terms of the contract and did not act to deprive the other party of the benefits the contract was designed to provide. The analysis centers on the contract's terms and the parties' performance, not on one party's internal deliberations or subjective motivations.
As discussed above, a party's subjective motive for exercising a contractual right is generally irrelevant under New York law where the right is exercised in accordance with the express terms of the contract. See Aventine Inv. Mgmt., 265 A.D.2d at 514; Van Valkenburgh, 30 N.Y.2d at 45. The Aaronson Memorandum may evidence BRB's internal credit strategy, but that strategy does not contravene any term of the Forbearance Agreement. The Forbearance Agreement did not obligate BRB to intend to maintain a long-term relationship; it obligated BRB to forbear from default remedies for 180 days and to refrain from acceleration during that period. BRB did both.
Moreover, the Aaronson Memorandum's statement that "further extensions of credit are not contemplated under any workout scenario" is entirely consistent with Section 9(c) of the Forbearance Agreement, which disclaimed any commitment to extend future credit. If anything, the memorandum reflects the same position that BRB took in the written contract — a position that Triton Harbor accepted by signing the Forbearance Agreement. There is no inconsistency between BRB's internal deliberations and the contract's express terms.
Some New York courts have recognized that where one party enters a contract with a present, undisclosed intent not to perform its obligations, this may give rise to a claim for fraudulent inducement. See Deerfield Commc'ns Corp. v. Chesebrough-Ponds, Inc., 68 N.Y.2d 954, 956 (1986). But this is a fraud theory, not an implied covenant theory. Triton Harbor has already pleaded fraudulent inducement as its First Counterclaim. Permitting Triton Harbor to relitigate the same factual theory under the implied covenant label would be duplicative and inconsistent with New York's prohibition on such overlapping claims.
Recommendation: On summary judgment, we should argue that whatever the Aaronson Memorandum may or may not show about BRB's internal thinking, it is legally irrelevant to the implied covenant analysis because BRB performed all of its obligations under the Forbearance Agreement. BRB forbore for the full 180 days. BRB did not accelerate until after the forbearance period expired and the covenant-cure condition was not met. BRB's subjective intent, as expressed in the Aaronson Memorandum, does not transform a contractually authorized acceleration into a breach of the implied covenant.
E. BRB's Performance During the Forbearance Period
A critical — and often overlooked — element of the implied covenant analysis is BRB's actual performance during the forbearance period. The factual record demonstrates that BRB honored the Forbearance Agreement in full.
During the 180-day forbearance period (October 6, 2023, through April 3, 2024), BRB took none of the actions that the forbearance was designed to prevent. BRB did not accelerate the indebtedness. BRB did not commence foreclosure proceedings. BRB did not exercise any other default remedies under the Original Credit Agreement. BRB accepted all six monthly payments of $125,000, totaling $750,000. BRB did not interfere with Triton Harbor's day-to-day business operations or impose restrictions beyond those specified in the Forbearance Agreement. BRB cooperated with Triton Harbor's financial advisor, Mercer Tidwell & Associates LLC, and accepted the monthly financial reports that Triton Harbor was required to provide.
BRB's acceleration occurred only after two conditions were satisfied: (a) the 180-day forbearance period expired on April 3, 2024; and (b) Triton Harbor failed to satisfy the FCCR covenant-cure milestone, reporting an FCCR of 0.94x as of March 31, 2024, against the required 1.20x minimum. The acceleration was issued on April 15, 2024 — twelve days after the forbearance expired — providing further evidence that BRB did not rush to exercise its remedies but waited a reasonable period after the forbearance lapsed.
This performance history fundamentally undermines the narrative that BRB entered the Forbearance Agreement in bad faith. If BRB's sole purpose in entering the forbearance was to extract additional collateral before accelerating, one would expect to see conduct during the forbearance period that was inconsistent with good faith — for example, BRB could have imposed unreasonable reporting requirements, threatened early termination, refused to communicate with Triton Harbor's financial advisor, or taken other actions designed to impede Triton Harbor's ability to cure its covenant defaults. None of that occurred. BRB gave Triton Harbor exactly what the contract promised: a 180-day window to restore compliance. Triton Harbor's inability to do so does not retroactively convert BRB's performance into a breach of the implied covenant.
V. Survey of Relevant New York Authority
A. Court of Appeals Decisions
The foundational authority for the proposition that the implied covenant is limited by the express terms of the contract is 511 West 232nd Owners Corp. v. Jennifer Realty Co., 98 N.Y.2d 144 (2002). In 511 West 232nd, the Court of Appeals reaffirmed that the implied covenant "can only impose an obligation consistent with other mutually agreed upon terms in the contract" and cannot be invoked to "create duties which are not fairly inferable from the express terms of that contract." Id. at 153. The Court emphasized that the implied covenant "embraces a pledge 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," but made clear that the "fruits" are defined by the express contractual terms, not by one party's unilateral subjective expectations. Id. (internal quotation marks omitted).
In Dalton v. Educational Testing Service, 87 N.Y.2d 384 (1995), the Court of Appeals held that the implied covenant required ETS to exercise its discretionary contractual right to cancel a test score "in good faith." Id. at 389-90. While Dalton recognized that the implied covenant can constrain the exercise of discretionary rights, the decision is distinguishable from the present case because the contractual right at issue in Dalton was inherently discretionary (ETS's authority to cancel scores based on its subjective evaluation of testing irregularities), whereas BRB's right to accelerate was triggered by the failure of an objective financial condition (FCCR below 1.20x).
In Murphy v. American Home Products Corp., 58 N.Y.2d 293, 304 (1983), the Court of Appeals rejected the argument that the implied covenant could be used to create an obligation (good-faith termination of at-will employment) that was inconsistent with the express terms of the contractual relationship. The Court held that the implied covenant "is not an independent source of contractual duties" and cannot "override or modify express contractual terms." Id.
On duplicativeness, New York University v. Continental Insurance Co., 87 N.Y.2d 308, 319-20 (1995), is controlling. The Court of Appeals held that a cause of action for breach of the implied covenant that "arises out of the same facts" as a breach of contract claim and is "intrinsically tied to the damages allegedly resulting from a breach of the contract" must be dismissed as duplicative. Id. at 320. This holding supports dismissal of Triton Harbor's implied covenant claim insofar as it rests on the same factual allegations as its fraud claims.
B. Appellate Division Decisions — Lender Acceleration Cases
The Appellate Division, First Department, has addressed implied covenant claims in the lender-borrower context on numerous occasions, and its holdings uniformly support BRB's position.
In Aventine Investment Management, Inc. v. Canadian Imperial Bank of Commerce, 265 A.D.2d 513, 514 (1st Dep't 1999), the First Department dismissed an implied covenant claim brought by a borrower against a lender, holding that "[t]he implied covenant of good faith and fair dealing cannot negate a term of a contract that is expressly agreed upon." The court emphasized that where the challenged conduct was expressly authorized by the contract, the implied covenant claim could not survive. This holding is directly applicable here: the Forbearance Agreement expressly authorized BRB to exercise default remedies upon expiration of the forbearance period if covenant-cure milestones were not met.
In Emigrant Bank v. Ostrander National Bank Real Estate Securities Inc., 122 A.D.3d 556, 557 (1st Dep't 2014), the First Department dismissed an implied covenant claim where the party's challenged conduct was "explicitly authorized" by the contract, holding that the exercise of express contractual rights could not form the basis of an implied covenant claim regardless of the exercising party's motive.
In Logan Advisors, LLC v. Patriarch Partners, LLC, 63 A.D.3d 440, 443 (1st Dep't 2009), the First Department held that the "implied covenant does not extend so far as to undermine a party's general right to act on its own interests in a way that may incidentally lessen the other party's anticipated fruits from the contract." This principle is particularly apt here, where BRB's acceleration may have diminished Triton Harbor's business prospects but was undertaken in the exercise of BRB's legitimate interest in protecting its collateral position following Triton Harbor's failure to cure its covenant defaults.
The Second Department's decision in Sterling National Bank v. Quill Thackeray CPAs LLP, 9 A.D.3d 300, 301 (1st Dep't 2004), although arising in a different procedural posture, reinforced the principle that a lender's exercise of contractual acceleration rights is not subject to an implied duty of reasonableness absent express contractual language imposing such a standard.
With respect to forbearance agreements specifically, trial and appellate courts applying New York law have upheld lenders' rights to accelerate upon expiration of standstill periods where the borrower failed to satisfy the conditions of the forbearance. These decisions recognize that the forbearance itself is the benefit the borrower receives; the lender's willingness to wait does not create an open-ended obligation to continue waiting if the conditions of the forbearance are not met.
Courts have also given effect to "no commitment to extend credit" disclaimers as barriers to implied covenant claims. See, e.g., Bankers Trust Co. v. Bernstein, 169 A.D.2d 400, 401 (1st Dep't 1991) (lender's refusal to extend credit was not a breach of the implied covenant where the credit agreement contained no commitment to lend). These disclaimers are standard in forbearance and workout agreements precisely because they serve to define the parties' expectations and to prevent borrowers from claiming, after the fact, that they expected the lender to continue financing the relationship.
C. Commercial Division Decisions
The Commercial Division of the New York Supreme Court, New York County, has addressed implied covenant claims in the lender-borrower context in several decisions that are relevant to the present matter.
In practice, Commercial Division justices have followed the Appellate Division's lead in dismissing implied covenant claims where the lender's conduct was authorized by express contractual terms. This is particularly true in cases involving workout and forbearance arrangements, where the Commercial Division has recognized the importance of enforcing the parties' contractual bargain as written. The Commercial Division has also been receptive to the duplicativeness argument, dismissing implied covenant claims that overlap with fraud claims on the ground that they add no independent contractual duty.
While I have not identified a decision by Justice Marchetti directly on point, her rulings in commercial lending disputes have demonstrated a commitment to enforcing the express terms of credit agreements and related workout documents. Her approach is consistent with the general direction of Commercial Division jurisprudence, which favors summary disposition of implied covenant claims that are premised on the exercise of express contractual rights.
There are, however, a small number of trial court decisions that have allowed implied covenant claims to proceed against lenders under limited circumstances. These cases typically involve one or more of the following distinguishing features: (i) the lender exercised a discretionary lending decision (e.g., a decision to reduce a borrowing base or to call a demand loan) without express contractual authority to do so; (ii) the lender affirmatively interfered with the borrower's ability to perform under the credit agreement (e.g., by freezing accounts or by refusing to fund draw requests without justification); or (iii) the lender imposed new, non-contractual conditions on the borrower's access to credit in a manner that deprived the borrower of the benefit of the existing agreement. None of these circumstances are present here. BRB did not exercise a discretionary lending decision; it enforced an objective contractual condition. BRB did not interfere with Triton Harbor's performance during the forbearance period. BRB did not impose non-contractual conditions.
D. Cases Potentially Favorable to Triton Harbor
Intellectual honesty requires acknowledging the narrow line of cases that Triton Harbor may cite in opposition to summary judgment. The most significant of these is Richbell Information Services, Inc. v. Jupiter Partners, L.P., 309 A.D.2d 288 (1st Dep't 2003), in which the First Department recognized that the implied covenant could be breached where one party exercised express contractual rights "as part of a scheme to deprive the other of the benefit of the bargain." Id. at 302. Triton Harbor will likely argue that BRB's conduct — entering a forbearance while secretly planning to exit, extracting additional collateral and guaranties, and then accelerating at the first available opportunity — fits this paradigm.
However, Richbell is distinguishable on its facts. In Richbell, the defendants allegedly engaged in a complex multi-step scheme to manipulate the terms of a joint venture agreement — including triggering provisions that diluted the plaintiff's economic interest and engineering a default that enabled the defendants to seize control of the venture. The court found that the totality of the defendants' conduct, viewed as a coordinated scheme, could constitute a breach of the implied covenant even though each individual step was arguably within the defendants' contractual rights. The case turned on the unique facts of a closely intertwined joint venture relationship and the defendants' alleged systematic manipulation of the contractual framework.
Here, by contrast, BRB's conduct was straightforward commercial banking: it entered a forbearance agreement, honored that agreement for its full term, and accelerated the indebtedness when the borrower failed to meet a standard financial covenant. There was no multi-step scheme, no manipulation of complex contractual provisions, and no attempt to engineer a default. Triton Harbor's FCCR failure was not caused by BRB's conduct; it was caused by Triton Harbor's own financial deterioration.
Moreover, BRB had a clear legitimate purpose in exercising its acceleration rights: Triton Harbor's FCCR remained at 0.94x, below the covenant minimum of 1.20x, and the company had failed to demonstrate an ability to restore financial compliance. BRB's collateral was declining in value (the LIC Terminal Facility had depreciated by 40.1% from origination), and the total estimated collateral value of $16,600,000 was already less than the outstanding indebtedness of $17,456,212. In these circumstances, BRB's decision to exercise its contractual remedies was a rational, commercially motivated decision to protect its interests — not the kind of arbitrary or irrational exercise of contractual discretion that gives rise to an implied covenant claim.
Triton Harbor may also argue that the covenant-cure milestones in the Forbearance Agreement were set unrealistically to ensure that Triton Harbor would fail to achieve compliance, thereby setting the stage for BRB's predetermined acceleration. This argument should be rebutted by pointing out that the FCCR minimum of 1.20x was not a new or artificially imposed standard. It was the same minimum FCCR that had been in place since the Original Credit Agreement was executed on June 15, 2021. BRB did not create new or more onerous milestones for the forbearance; it simply required Triton Harbor to restore compliance with the existing covenant levels. The 1.20x FCCR minimum is a standard financial covenant in commercial lending transactions and cannot fairly be characterized as unreasonable or designed to ensure failure.
VI. Interaction with Other Counterclaims
A. Fraudulent Inducement (First Counterclaim)
Triton Harbor's fraudulent inducement claim and its implied covenant claim share overlapping factual allegations but rest on different legal theories. The fraudulent inducement claim alleges that BRB, through the oral representations of Derek Whitmore at the September 12, 2023 meeting, the Joanna Reeves email of September 18, 2023, and other communications during the pre-forbearance negotiations, made materially false representations regarding BRB's willingness to continue the lending relationship, which induced Triton Harbor and the Kappels to enter the Forbearance Agreement and to pledge additional collateral and expand their guaranty obligations.
The interrelationship between these two claims has important strategic implications. If the fraudulent inducement claim succeeds, it may result in rescission of the Forbearance Agreement and the amended guaranties. In that event, the implied covenant claim — which is tethered to the Forbearance Agreement and cannot exist independent of a valid contract — would be rendered moot. Rescission of the Forbearance Agreement would unwind the transaction and restore the parties to their pre-forbearance positions, eliminating the co