## Facts

- Moon Group, Inc. (Moon) entered into a revolving credit/lockbox financing agreement with KORE Capital Corporation (KORE) under which KORE could make advances to Moon based on Moon’s accounts receivable and took a security interest in those receivables.
- The agreement stated that KORE had “sole discretion” to decide whether to make advances.
- In July 2021, KORE refused Moon’s request for an advance.
- In August 2021, Moon filed for Chapter 11 bankruptcy in the District of Delaware.
- In September 2021, Moon filed an adversary complaint against KORE alleging that KORE’s refusal to fund breached the agreement and that, based on KORE’s control of cash receipts through the lockbox structure, KORE owed Moon fiduciary or similar duties.
- Moon also alleged that an implied covenant of good faith and fair dealing limited KORE’s discretion, such that KORE could not refuse advances in bad faith.
- In February 2022, the bankruptcy case converted to Chapter 7, and the Chapter 7 trustee, Don A. Beskrone, assumed prosecution of the adversary proceeding.
- KORE moved for judgment on the pleadings on the trustee’s amended complaint, which asserted eight counts arising from KORE’s refusal to advance.

## Issues

1. Whether a revolving credit/lockbox agreement granting a lender “sole discretion” to make advances allows the lender to refuse an advance without breaching the agreement.
2. Whether Maryland law recognizes a standalone claim for breach of the implied covenant of good faith and fair dealing, and whether the implied covenant can limit express “sole discretion” funding language.
3. Whether the lender’s lockbox/cash-control features and collateral rights can create a fiduciary relationship or other noncontract duties running from lender to borrower.
4. Whether the lender’s refusal to advance funds can support “prevention of performance” theories or other claims premised on the borrower’s inability to continue operations or meet obligations.

## Decision

- The bankruptcy court granted KORE’s motion for judgment on the pleadings in part, entering judgment for KORE on seven of the eight counts in the amended complaint.
- The court treated the agreement’s “sole discretion” advance language as controlling and held that KORE’s refusal to make an advance was within the discretion the parties wrote into the contract.
- The court rejected the theory that KORE’s refusal to advance funds “prevented” Moon from performing its obligations under the loan documents.
- Applying Maryland law, the court held that breach of the implied duty of good faith and fair dealing is not an independent cause of action and dismissed the count that attempted to plead it as a freestanding claim.
- The court declined to impose fiduciary or special duties on KORE based solely on the lockbox financing structure and KORE’s contractual cash-control rights.
- One count survived, so the order was interlocutory.

## Legal Principles

- When a contract expressly gives a lender “sole discretion” to make or withhold advances, courts generally enforce that allocation of decision-making authority as written.
- The implied covenant of good faith and fair dealing cannot be used to contradict or rewrite express contractual terms that grant one party broad contractual discretion.
- Under Maryland law, breach of the implied duty of good faith and fair dealing does not provide a standalone cause of action; it generally operates, if at all, within a contract claim consistent with the contract’s text.
- A lender’s contractual control over receivables collections and cash flow through a lockbox/blocked-account arrangement, without additional facts, does not by itself create a fiduciary relationship with the borrower.
- A lender’s refusal to make discretionary advances does not automatically establish “prevention of performance” or excuse the borrower’s duties where the borrower’s obligations are not conditioned on continued funding.

## Conclusion

In *In re Moon Group, Inc.*, the bankruptcy court enforced the revolving credit agreement’s express grant of “sole discretion” to KORE to decide whether to fund advances and ruled that the trustee’s effort to reframe that discretion as bad-faith conduct, fiduciary wrongdoing, or contractual prevention could not proceed as pleaded. Applying Maryland law, the court also dismissed a standalone implied-covenant claim and entered judgment on the pleadings for KORE on seven of eight counts, leaving only one claim for further litigation.


In re Moon Group, Inc., 2022 WL 4658615 (2022)