Although the implied covenant of good faith and fair dealing applies to nearly every contract governed under Delaware law, many claims alleging its breach fail at the earliest stages of litigation. Even when an implied covenant claim survives such preliminary stages, Delaware courts remain reluctant to permit it to proceed absent a genuine contractual gap. In fact, earlier this year in Johnson & Johnson v. Fortis Advisors – an implied covenant claim that survived through trial intact – the Delaware Supreme Court reversed on appeal, concluding there was no genuine contractual gap to be filled where the contract “repeatedly and expressly conditioned” the earnouts at issue. There, Justice LeGrow explained that the implied covenant applies in two narrow circumstances: (1) when a contract allocates discretionary authority to one party over a central aspect of the contract, and (2) to address unforeseen developments that threatened the bargained-for expectation in the contract, as the Delaware Supreme Court had set forth in Nemec v. Shrader.

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