L-R: Andrew Todres, Gregg Weiner, and Mohammed Hassan of Ropes & Gray. Courtesy photos A party's express right to exercise "sole discretion" in exercising a contractual right would appear, on its face, to insulate that party from liability for any and all exercises of that discretion. In practice, however, the grant of "sole discretion" to a contracting party has not been given such a wide berth by Delaware and New York courts. These courts have routinely held that it is not a violation of the implied covenant of good faith and fair dealing for a party to exercise a contractual, discretionary right out of economic self-interest, even to the detriment of a counterparty, provided that the decision made is not arbitrary or irrational.
