Binding LOI Provisions Can Impose a Good-Faith Negotiation Duty and Bar Break-Fee Recovery Upon Material Breach

Case: Sabre Oxidation Tech., Inc. v Superior Plus Corp., 2026 NY Slip Op 01835 (App Div, 3d Dept Mar. 26, 2026).
Court: Appellate Division of the Supreme Court, Third Department (McShan, J.).
Posture: Cross-appeals from an order denying both sides’ summary judgment motions concerning a letter-of-intent break-fee dispute.

1. Introduction

This case arises from a failed asset-purchase transaction governed by a September 2020 letter of intent (“LOI”) between operating entities in the chlorine dioxide business (plaintiffs) and Superior Plus Corp. (“Superior”). The LOI contained both nonbinding deal terms and certain binding provisions, including an expense reimbursement fee (“ERF”)—the greater of Superior’s expenses or $1 million—triggered if the transaction did not close within 45 days, unless the failure was due to Superior’s material breach of the LOI.

During the negotiation period, Superior was also negotiating to sell ERCO Worldwide (a subsidiary central to chlorine dioxide precursor production) to Birch Hill. That sale closed in early 2021 and was not disclosed to plaintiffs. Superior later demanded the $1 million ERF. After motion practice left only Holdco (assignee of rights under loan documents) as defendant on the ERF dispute, Holdco counterclaimed for the ERF and moved for summary judgment; plaintiffs cross-moved to dismiss the counterclaim and for summary judgment declaring no ERF obligation.

The core issues on appeal were: (i) whether prior rulings barred arguments under “law of the case,” (ii) whether the ERF clause was ambiguous, and (iii) whether triable fact questions existed as to Superior’s material breach—including breach of confidentiality and breach of the implied covenant of good faith and fair dealing—sufficient to defeat or excuse the ERF.

2. Summary of the Opinion

The Third Department affirmed denial of both motions for summary judgment. It held:

• Law of the case did not preclude plaintiffs’ defenses based on material breach/good faith, and a prior motion-to-dismiss decision noting possible ambiguity did not bind the summary judgment analysis.
• Section 8 (ERF provision) is unambiguous: the ERF is triggered if the deal fails to close within 45 days, unless Superior materially breached.
• Triable issues of fact exist as to whether Superior materially breached (a) the LOI’s binding confidentiality clause and/or (b) the implied covenant of good faith and fair dealing by failing to negotiate in good faith in a way that may have frustrated plaintiffs’ contractual right to withdraw within the 45-day window.
• Superior’s termination of the LOI did not, by itself, forfeit the ERF under the LOI’s text.

3. Analysis

3.1. Precedents Cited

A. “Law of the case” limits and motion-to-dismiss vs summary judgment

• Gulf Coast Bank & Trust Co. v Virgil Resort Funding Group, Inc. and Gitman v Martinez: The court relied on these to frame “law of the case” as a discretionary intra-action doctrine aimed at avoiding re-litigation of issues already decided in the same case, but only where the prior ruling actually decided a controlling legal question essential to the later determination.
• Brown v State of New York, Barbero v CSX Transp., and Scofield v Trustees of Union Coll.: These were used to emphasize that the doctrine applies only when a prior ruling “directly passed upon” the question of law essential to the subsequent issue.
• Vestal v Pontillo, Rosen v Mosby, Santiago v Pyramid Crossgates Co., plus sister-department support from Pogil v KPMG LLP, Riley v State of New York: These cases support the rule that a denial of a motion to dismiss (not converted to summary judgment) does not bind the court at the later summary judgment stage; earlier “appearance of ambiguity” language was not a conclusive legal determination.
• Granger v Schachenmayr, Matter of Hoppenstein, Stroem v Plackis, D'Amato v Access Mfg.: The court used these to distinguish between (i) an implied-covenant theory improperly trying to impose pre-contract formation duties and (ii) using implied covenant/material breach concepts to evaluate performance and enforcement of binding LOI provisions.

B. Summary judgment standards

• Sovocool v Cortland Regional Med. Ctr. and Matter of McNeil: These provided the Third Department’s reminder that summary judgment is “drastic,” requires viewing evidence favorably to the nonmovant, and forbids credibility determinations.

C. Contract ambiguity and plain meaning

• Zollo v Adirondack Lodges Homeowners Assn., Inc.: The court applied Zollo’s definition of ambiguity and reaffirmed that clear, complete agreements are enforced according to their plain meaning.
• Stevens & Thompson Paper Co., Inc. v Niagara Mohawk Power Corp.: Cited for the proposition that where the language is unambiguous, parol evidence is unnecessary and improper to vary meaning.

D. Material breach—definition and when it is for the factfinder

• Feldmann v Scepter Group, Pte. Ltd., SCE Envtl. Group, Inc. v Murnane Bldg. Contrs., Inc., U.W. Marx, Inc. v Koko Contr., Inc.: These supplied the governing definition: a material breach defeats the essential purpose of the contract.
• WILJEFF, LLC v United Realty Mgt. Corp., NY Professional Drywall of OC, Inc. v Rivergate Dev., LLC, and Syracuse Orthopedic Specialists, P.C. v Hootnick: The court used these to hold that materiality is typically a fact question unless the evidence is clear and substantially uncontradicted.
• Bisk v Cooper Sq. Realty, Inc.: Cited in contrast, illustrating circumstances where courts may treat the breach/materiality inquiry differently on the record presented.

E. Implied covenant of good faith and fair dealing; duty to negotiate in good faith

• 511 W. 232nd Owners Corp. v Jennifer Realty Co.: The court relied on Jennifer Realty to state that the implied covenant cannot contradict express terms but does encompass promises a reasonable party would understand as included.
• ARB Upstate Communications LLC v R.J. Reuter, L.L.C.: Used for the familiar rule: the covenant is breached when conduct, though not expressly forbidden, deprives the other party of the benefits of the agreement.
• Places in Saratoga, LLC v Izzo: This decision is central: when parties have a binding contract with obligations conditioned on negotiating future agreements, the implied covenant requires negotiation in good faith. The Sabre court applied that principle to a LOI with binding provisions (notwithstanding nonbinding deal terms).
• Moshan v PMB, LLC, Bed Bath & Beyond Inc. v IBEX Constr., LLC, Hajdu-Nemeth v Zachariou, contrasted with Buechner v Avery: These cases were invoked to emphasize that even where some aspects are “agreement to agree,” binding provisions and the implied covenant can still constrain conduct relevant to those binding commitments.
• Integrity Intl., Inc. v HP, Inc. and Highbridge Dev. BR, LLC v Diamond Dev., LLC: These supported sending to the factfinder whether conduct during negotiations and decision-making timing constituted bad faith that frustrated bargained-for rights.

3.2. Legal Reasoning

A. The court narrowed what “law of the case” actually decided

The Third Department rejected both sides’ attempts to treat earlier rulings as determinative. The prior dismissal of a good-faith claim did not foreclose plaintiffs’ later defense that Superior materially breached binding LOI obligations affecting ERF enforceability. And the prior motion-to-dismiss observation that the LOI “appears” ambiguous was not a legal conclusion binding on summary judgment—especially because the dismissal motion was not converted under CPLR 3212 (c).

B. Section 8 was construed as a one-way liquidated-damages scheme triggered by non-closing

The court read Section 8 “as a whole” and focused on internal definitions: “Breach” (and “Primary Breaches”) were defined around actions plaintiffs could take, and Superior was the only party eligible for liquidated damages. The ERF is triggered when the deal fails to close within 45 days, subject to the express carve-out: no ERF if the failure was due to Superior’s material breach. Because the 45-day non-closing was undisputed, the case turned on whether Superior materially breached.

C. Confidentiality breach and materiality were properly left for trial

Plaintiffs alleged Superior violated the binding confidentiality provision (Section 9) by disclosing the existence/terms of the LOI to Birch Hill while negotiating the sale of ERCO—a transaction that “obviated Superior’s need for Sabre.” Deposition testimony suggested Superior disclosed the LOI at some point, potentially to carve out a bridge loan from ERCO assets. The court held that whether this disclosure occurred when prohibited, and whether it was “so fundamental” as to defeat the essential purpose of the LOI’s binding protections, presented triable issues. The fact that confidentiality was one of the few binding provisions, and that plaintiffs claimed it constrained their ability to seek alternative offers, supported a fact question on materiality.

D. A binding LOI can require good-faith negotiation as to future agreements—where it matters to binding rights

Holdco argued no duty to negotiate in good faith could exist because the LOI’s core deal terms were nonbinding. The court rejected that as too broad: it would effectively immunize Superior from materially breaching anything while still collecting the ERF. Applying 511 W. 232nd Owners Corp. v Jennifer Realty Co., ARB Upstate Communications LLC v R.J. Reuter, L.L.C., and especially Places in Saratoga, LLC v Izzo, the court held the implied covenant attaches to the binding LOI provisions and can require good-faith negotiation when future agreements are contemplated but binding rights depend on the negotiation process.

Critically, the LOI gave plaintiffs a contractual right in Section 13 to withdraw within 45 days without penalty, while Section 8 imposed the ERF after 45 days. If Superior decided within that 45-day period not to proceed but failed to communicate that decision, plaintiffs could be deprived of the practical ability to exercise the withdrawal right—an archetypal implied-covenant problem. Hribar’s testimony created a triable issue on timing and disclosure of Superior’s decision-making, making summary judgment inappropriate for either side.

E. Termination did not, by itself, waive the ERF

Plaintiffs’ forfeiture argument was rejected because it conflicted with Section 8’s express trigger: non-closing within 45 days plus no material breach by Superior. Termination might be relevant to material breach/bad faith, but it was not an automatic ERF waiver.

3.3. Impact

• LOIs with mixed binding/nonbinding terms: The decision reinforces that a party cannot hide behind “nonbinding” labels to avoid implied-covenant constraints where binding provisions allocate risk (here, a post-45-day ERF) and confer time-sensitive rights (a penalty-free withdrawal window).
• Break-fee/expense reimbursement enforceability: Even when the fee clause is unambiguous, enforcement may hinge on fact-intensive “material breach” defenses grounded in confidentiality and negotiation conduct.
• Confidentiality provisions as materially significant: When confidentiality is designated “binding” in an LOI, alleged disclosure to third parties in parallel transactions can create a trial-worthy dispute on materiality—particularly where confidentiality is tied to exclusivity, market signaling, and deal leverage.
• Procedural clarity: The opinion provides a practical reminder that motion-to-dismiss rulings (not converted under CPLR 3212[c]) rarely lock in contract-interpretation outcomes for later summary judgment.

4. Complex Concepts Simplified

5. Conclusion

Sabre Oxidation Tech., Inc. v Superior Plus Corp. clarifies that where an LOI contains binding provisions allocating significant post-deadline financial consequences (an ERF) and confers a time-limited right to withdraw without penalty, the implied covenant of good faith and fair dealing can require good-faith negotiation and fair dealing during the operative window. Even with an unambiguous fee clause, a party seeking to enforce it may be denied summary judgment if there are triable issues that the party materially breached binding obligations—especially confidentiality—or acted in bad faith in a way that deprived the counterparty of bargained-for rights. The opinion’s practical significance lies in its insistence that “nonbinding deal” framing does not neutralize binding LOI commitments or the implied covenant’s role in policing opportunism around them.