CONTRACTS

Breach • Implied Covenant of Good Faith and Fair Dealing • Termination

Nat’l Educ. Fin. Svcs. v. U.S. Bank, PICS Case No. 14-0430 (E.D. Pa. March 6, 2014) Restrepo, J. (10 pages).

Where the contract between the parties expressly provided for 60 days notice before termination and an agreement to protect the reputation of plaintiffs, claims for breach of implied covenants failed. Motion to dismiss granted in part.

Plaintiffs were marketers, servicers, and originators of private and federal student loans. Plaintiffs entered into an agreement with defendant, a bank, in which plaintiffs would promote and market defendant’s student loan products by working with financial aid offices in colleges and universities. Plaintiffs alleged that the agreement was for two years but defendant ended it in the second year with only a few days notice during a critical time wherein they were unable to mitigate their loss and were significantly damaged.

The court previously dismissed all tort and quasi-contract claims with prejudice but allowed certain breach of contract claims to continue. Plaintiffs’ second amended complaint had causes of action for breach of contract and breach of the implied covenant of good faith and fair dealing. Defendant filed a motion to dismiss the good faith and fair dealing claim and a request for indirect damages contained in the breach of contract claim.

The court examined whether there were implied terms in the agreement that should be enforced. The second amended complaint contained six obligations that plaintiffs alleged were implied in the agreement. The court found that five of them failed because they dealt with termination which was clearly covered in section five of the agreement. The alleged obligations related to the requirement that defendant give plaintiffs 60 days notice so plaintiffs could mitigate the damages from the loss of defendant’s line of business.

The remaining implied obligation related to defendant’s respecting plaintiffs’ relationships with the client schools. The court found that this claim was also part of the breach of contract claim under the reputation clause and could not proceed. The claim for indirect damages also was dismissed because it was part of the breach of the implied covenant of good faith and fair dealing and not from the breach of express contract claims.