Court Holds No Breach Of Implied Covenant Of Good Faith And Fair Dealing Where Defendant Does Not Thwart The Performance Of The Contract

• Posted on: Sep 5 2017

Implicit in every contract is a covenant of good faith and fair dealing. New York Univ. v. Continental Ins. Co., 87 N.Y.2d 308, 318 (1995). “The covenant is breached where one party to a contract seeks to prevent its performance by, or to withhold its benefits from, the other.” Michaan v. Gazebo Hort., Inc., 117 A.D.3d 692, 693 (2d Dept. 2014) (citation and quotation omitted).  “While the duties of good faith and fair dealing do not imply obligations inconsistent with other terms of the contractual relationship, they do encompass any promises which a reasonable person in the position of the promisee would be justified in understanding were included.” 511 W 232nd Owners Corp. v. Jennifer Realty Co., 98 N.Y.2d 144, 153 (2002).

This Blog previously wrote about the covenant here and here.

On August 23, 2017, the Supreme Court, Appellate Division, Second Department, considered these principles in affirming the dismissal of a claim alleging a breach of the implied covenant of good faith and fair dealing. Rayham v. Multiplan, Inc., 2017 NY Slip Op 06306 (2d Dept. Aug. 23, 2017).

Rayham v. Multiplan, Inc.

Background

Roman Rayham (“Rayham”), a plastic surgeon, and his private practice, RR Plastic Surgery P.C. (“RR Office”), commenced the action on June 17, 2013 against one the defendants, Multiplan, Inc. (“Multiplan”), a preferred provider organization, alleging causes of action for breach of contract, breach of the implied covenant of good faith and fair dealing, unjust enrichment and quantum meruit.

In 2009, in connection with his practice at New York Methodist Hospital (“Methodist”), Rayham executed a limited power of attorney authorizing Allegiance Billing & Consulting, LLC (“Allegiance”) to contract on his behalf with network providers and health insurance companies for services performed at Methodist.

In 2010, Allegiance executed an agreement (the “Beech Street Agreement”) on Rayham’s behalf with one of the defendants, Beech Street Corporation (“Beech Street”), a preferred provider organization. The Beech Street Agreement provided that its terms could be amended upon “30 days prior written notice from Beech to [Rayham]” and that the “amendment shall be effective at the conclusion of such 30 day notice period unless [Rayham] objects to the amendment and notifies Beech in writing of [Rayham’s] intent to terminate prior to the conclusion of such notice period.” The address to which the Beech Street Agreement required the written notice to be sent was the address for the office of Park Slope Physician Services P.C. (“PSPS”), which handled all of Methodist’s billing, including the billing for services Rayham provided at Methodist. The Beech Street Agreement further provided that Beech Street could assign its rights under the contract to a “Beech Affiliate,” which was defined as any “entity” that is “controlled by or is under common control of Beech [Street].”

In 2010, Multiplan acquired Beech Street’s parent company. In March 2011, Multiplan sent two letters to Rayham at PSPS’s address. Both letters advised that Multiplan had acquired Beech Street and that, effective July 15, 2011, the Beech Street and Multiplan networks would integrate and claims would be processed under Multiplan’s fee schedule. The second letter, dated March 28, 2011, advised that the Beech Street Agreement would be amended so as to include the claims for services Rayham provided at Methodist in the Multiplan network. Rayham claimed he never received these letters.

In November 2011, the Plaintiffs faxed Beech Street a letter requesting that the RR Office be added “to our profile,” with a retroactive date of July 1, 2011. The letter provided the RR Office’s address and tax-identification number, and a W-9 form was attached. Upon receiving the fax, the Defendants retroactively enrolled the RR Office in their networks and processed the RR Office’s claims according to Multiplan’s fee schedule. A few months later, after realizing that the RR Office was receiving lower reimbursements than were once provided by Beech Street, Rayham learned that Multiplan had acquired Beech Street and that claims were being processed pursuant to Multiplan’s fee schedule. Rayham requested the RR Office’s removal from the Defendants’ networks. This request was granted, but the request for the reprocessing of the RR Office’s claims was denied.

In their complaint, the Plaintiffs alleged that the Defendants unilaterally altered the terms of the Beech Street Agreement by placing the RR Office in the Multiplan network and repricing its claims under the Multiplan fee schedule without affording the Plaintiffs notice or an opportunity to object as required under the Beech Street Agreement. Following joinder of issue and the completion of discovery, the Plaintiffs moved for summary judgment on the complaint, and the Defendants cross-moved for summary judgment dismissing the complaint.

The motion court denied the Plaintiffs’ motion and granted the Defendants’ cross motion. The Plaintiffs appealed.

The Court’s Ruling

On the breach of contract claim, the Court held that the motion court “properly granted that branch of the defendants’ motion….” The Court found that the Defendants “complied with the Beech Street Agreement by sending the March 2011 letters, which advised Rayham that Multiplan had acquired Beech Street and that claims would be processed under the Multiplan fee schedule, to the address expressly required by the contract for such written notices.” The Court rejected the Plaintiff’s argument that Beech Street should have sent the notice, as opposed to Multiplan, because Multiplan “met the definition of a ‘Beech affiliate’ under the Beech Street Agreement.” Consequently, there could be no breach of contract “since the defendants provided Rayham with proper notice that the Beech Street Agreement would be amended so as to subject claims to the Multiplan fee schedule, and Rayham failed to object in writing within the 30-day notice period.”

Having disposed of the contract claim, the Court turned its attention to the breach of the implied covenant of good faith and fair dealing. Noting that “[t]he covenant is breached where one party to a contract seeks to prevent its performance by, or to withhold its benefits from, the other,” the Court found that the Defendants’ “submissions established, prima facie, that they did not withhold the benefits of, or seek to prevent the performance of, the Beech Street Agreement either in its original form, or as amended.” Consequently, the motion court “properly granted that branch of the defendants’ motion which was for summary judgment dismissing the cause of action alleging a breach of the implied covenant of good faith and fair dealing.”

Takeaway

Rayham teaches that in order to breach the implied covenant of good faith and fair dealing, one party must act in way that denies the fruits of the contract for the other. Rayham learned this lesson the hard way – the Defendants acted consistent with the terms of the Beech Street Agreement.

Tagged with: Business Law, Business Litigation, Commercial Litigation, Contracts, Fair Dealing, Implied Covenant Of Good Faith