“Willful misconduct”– a commonly used term in contracts does not mean what you think it means

In Manhattan Chrystie St. Dev. Fund LLC v. Witkoff Group LLC (2023 NY Slip Op 50622(U), 2023 N.Y. Misc. LEXIS 3056), a New York trial court analyzed the meaning of the term “willful misconduct” in a commercial contract (specifically, a guaranty) governed by Delaware law.

The trial court generally concluded that “willful conduct” is an action that is “voluntary and intentional, but not necessarily malicious.” That distinction is significant because most commercial contracts impose a liability standard that uses the phrase “willful misconduct.” A common interpretation is that “willful misconduct” requires some form of malice or behavior based on vengeance or other vindictive behavior. Based on this trial court’s interpretation–“willful misconduct” is simply conduct that is “willful” (i.e., a volitional act as opposed to an accident) and does not require any spitefulness or other egregious state of mind.

That trial court’s interpretation of “willful misconduct” in the context of the pleading stage was based on Kelly v. Blum (2010 Del. Ch. LEXIS 31, 2010 WL 629850, *12 [Del. Ch. 2010] [citing Black’s Law Dictionary]) and In re Cadira Grp. Holdings, LLC Litig. (2021 Del. Ch. LEXIS 151, 2021 WL 2912479, *9 [Del. Ch. 2021]).