34 F.4th 994
11th Cir.2022Background
- Plaintiff Lujerio Cordero, a childhood lead-poisoning victim with permanent cognitive impairment, received a structured settlement paying ~$3,184/month for 30 years funded by Transamerica annuity contracts.
- The Settlement Agreement and Transamerica Qualified Assignment included New York choice-of-law and anti-assignment clauses stating periodic payments "may not be anticipated, sold, assigned or encumbered."
- Between ages 22–24, Cordero (with limited capacity) signed six transfers of his settlement payments to factoring companies for lump sums worth only pennies on the dollar; factoring companies obtained Florida court approval under Florida’s Structured Settlement Protection Act (SSPA).
- Transamerica provided consent forms for each transfer, received $750 administrative fees per transfer, but did not contact or obtain informed consent from Cordero; Florida hearings approving the transfers occurred without Cordero or counsel attending.
- Cordero sued Transamerica (not the factors), alleging breach of the implied covenant of good faith and fair dealing by consenting to the transfers and thereby undermining the contract’s fundamental purpose; the district court dismissed the breach-of-contract claim with prejudice.
- The Eleventh Circuit certified a controlling question of New York law to the New York Court of Appeals: whether pleading that a defendant "drastically undermined a fundamental objective of the parties’ contract"—though the specific duty was not written—suffices to state a claim for breach of the implied covenant of good faith and fair dealing.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether alleging that defendant drastically undermined a contract's fundamental objective is sufficient to plead breach of the implied covenant of good faith and fair dealing when the underlying duty is not explicitly in the writing | Cordero: Transamerica’s consent to the predatory transfers defeated the contract’s purpose and an implied duty exists to prevent such conduct | Transamerica: Anti-assignment clauses impose no affirmative duty on Transamerica; covenant cannot create new obligations inconsistent with the contract | Eleventh Circuit declined to decide and certified the question to the New York Court of Appeals for authoritative resolution |
Key Cases Cited
- 511 W. 232nd Owners Corp. v. Jennifer Realty Co., 773 N.E.2d 496 (N.Y. 2002) (plaintiffs pleaded implied contractual duty where sponsor’s retention of shares subverted contract’s fundamental objective)
- Dalton v. Educ. Testing Serv., 663 N.E.2d 289 (N.Y. 1995) (describes scope and limits of implied covenant of good faith and fair dealing)
- Fasolino Foods Co. v. Banca Nazionale del Lavoro, 961 F.2d 1052 (2d Cir. 1992) (breach of implied covenant is a breach of the underlying contract)
- Compania Embotelladora Del Pacifico, S.A. v. Pepsi Cola Co., 976 F.3d 239 (2d Cir. 2020) (implied covenant cannot create affirmative duties inconsistent with contract terms)
- Spinelli v. Nat’l Football League, 903 F.3d 185 (2d Cir. 2018) (recognizes implied covenant under New York law)
- Richbell Info. Servs., Inc. v. Jupiter Partners, L.P., 765 N.Y.S.2d 575 (N.Y. App. Div. 2003) (characterizes malevolent exercise of contract discretion as breach of implied covenant)