EIG Credit Management Company, LLC v. CNX Resources Corporation

Background

EIG Credit Management Company, LLC sued CNX Resources Corporation for breach of contract concerning a preliminary agreement to pursue financing for CNX. CNX answered and asserted counterclaims against EIG for breach of contract and breach of the implied covenant of good faith and fair dealing.

The parties signed a Mandate Agreement and related Indicative Terms in November 2019. The agreement gave EIG an exclusive mandate to seek potential financing for CNX, required CNX to observe an exclusivity period and pay certain reasonable, documented costs, and described general financing terms and minimum conditions. The agreement stated that EIG was not committed to provide or arrange the financing itself and that any future commitment would have to be in writing.

The parties continued due diligence, negotiations, and preparation of closing documents. CNX alleged that EIG later demanded major changes, including restrictions on stock buybacks and note repurchases, changes to the financing amount, additional reporting requirements, and a higher bond coupon. CNX alleged that these changes were conditions EIG knew would not be acceptable and that EIG delayed presenting them to pressure CNX. CNX claimed fees, expenses, and labor costs, as well as losses from not being able to purchase certain bonds at favorable prices.

Rule 12(b)(6) Standard

EIG moved to dismiss CNX’s amended counterclaims for failure to state a legally sufficient claim under Federal Rule of Civil Procedure 12(b)(6). At this stage, the court accepted well-pleaded allegations as true, drew reasonable inferences for CNX, and considered the written agreement incorporated into the pleadings. The court could decide the meaning of an unambiguous contract as a matter of law.

Breach-of-Contract Counterclaim

The court held that the agreement was a binding “Type II” preliminary agreement under New York law. This type of agreement does not require the parties to complete the ultimate transaction, but it does require them to negotiate remaining terms in good faith within the framework they established.

The court concluded that the agreement required EIG to seek financing generally consistent with the Indicative Terms and to negotiate open issues in good faith. The court relied primarily on the agreement’s language and also noted CNX’s partial performance, including exclusivity and providing information for due diligence. The court rejected EIG’s argument that open terms and the Indicative Terms’ discussion-only language eliminated all contractual obligations.

The court also held that CNX plausibly alleged a breach. CNX identified specific alleged conduct: EIG’s late demand for major changes to core financing terms and alleged delay or dishonesty in presenting those changes. Because good faith ordinarily presents a factual question, the court allowed this portion of CNX’s breach-of-contract counterclaim to proceed.

Implied Covenant Claim

The court dismissed CNX’s claim for breach of the implied covenant of good faith and fair dealing with prejudice. Under New York law, a separate implied-covenant claim generally is not available when it is based on the same facts as an express breach-of-contract claim. The court found CNX’s implied-covenant theory duplicative of its claim that EIG breached the contractual duty to negotiate in good faith.

Damages

The court held that CNX plausibly alleged fees, expenses, and labor costs caused by EIG’s alleged bad-faith conduct. CNX alleged that, had EIG acted in good faith, the parties either would have completed a deal earlier or EIG would have told CNX earlier that financing could not be obtained, reducing the expenses incurred during the drafting process.

The court rejected CNX’s claimed damages for lost opportunities to purchase its 2022 and 2027 bonds at favorable prices. CNX did not plausibly allege that those opportunities were foreseeable when the agreement was made or that EIG’s alleged delay directly caused the missed purchases. The court stated that EIG was not obligated to provide financing and that CNX’s theory depended on several unsupported possibilities, including obtaining financing in time and in a sufficient amount. The court therefore ruled that damages for the lost collateral business opportunities were not adequately pleaded.

Jury Demand and Disposition

CNX did not oppose EIG’s motion to strike the jury demand, and the court granted that motion.

Judge Alison J. Nathan concluded that EIG’s motion was granted in part and denied in part. CNX’s implied-covenant counterclaim was dismissed with prejudice; its breach-of-contract counterclaim survived, but not its claim for lost collateral business-opportunity damages; and CNX’s jury demand was stricken. Discovery was to proceed under the case-management plan and later scheduling orders.