This section contains the nature of the case and procedural background.

P agreed to render his services as a recording artist and songwriter exclusively to P from 1972 to 1983. P transferred its rights to D's music to Asylum Records. Under these agreements, P was to produce master recordings featuring performances by D. Asylum Records, now Warner (D), obtained from P the worldwide right to 'manufacture, sell, distribute and advertise records or other reproductions (visual or nonvisual) embodying such recordings, to lease, license, convey or otherwise use or dispose of the recordings by any method now or hereafter known, in any field of use, to release records under any trademarks, trade names or labels, to perform the records or other reproductions publicly and to permit the public performance thereof by radio broadcast, television or any other method now or hereafter known, all upon such terms and conditions as we may approve, and to permit others to do any or all of the foregoing . . ..' The agreements also specifically stated that Warner (D) 'may at our election refrain from any or all of the foregoing.' P was to receive as a royalty a percentage of the amount earned by Warner (D) from its exploitation of the music. Warner (D) was also required to pay P a specific dollar amount as an advance on royalties. In 1993, an affiliate of P known as Bizarre/Straight Records wanted to compile and market an album of previously released Waits compositions, including four that were the subject of the P-D agreement. Bizarre/Straight presented a licensing proposal. Warner (D) had no objection to the deal, but that it would not be made final unless D personally approved the licensing request. D refused consent. P sued D for breach of the implied covenant of good faith and fair dealing. Warner (D) demurred alleging that the clause in the agreement permitting it to 'at [its] election refrain' from doing anything to profitably exploit the music is controlling and precludes the application of any implied covenant. The court agreed and dismissed P’s complaint. P appealed.

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