67 N.Y.2d 266 (1986)
A new business seeking to recover lost future profits faces a stricter standard of proof, as there is often no reasonable basis of experience to estimate profits with reasonable certainty.
Summary
Kenford Co. sued Erie County for breach of contract after the county failed to build a domed stadium. Kenford sought damages for lost profits it expected to earn over 20 years managing the stadium. The New York Court of Appeals held that Kenford’s proof of lost profits was too speculative, given the newness of the business and the lack of certainty that the stadium would be built and successfully operated as planned. The court emphasized the need for certainty and foreseeability in proving lost profits, particularly for new ventures.
Facts
Erie County contracted with Kenford and Dome Stadium, Inc. (DSI) to build and lease a domed stadium. The contract stipulated the County would start construction within 12 months and negotiate a 40-year lease with DSI. If a lease wasn’t agreed upon, a 20-year management contract appended to the agreement would take effect. The parties failed to agree on a lease, and the County never commenced construction, breaching the contract. DSI sought damages for lost profits it anticipated earning over the 20-year management period.
Procedural History
Kenford and DSI sued Erie County for breach of contract. The trial court granted summary judgment against the County on liability. A trial on damages resulted in a large jury verdict for the plaintiffs. The Appellate Division reversed the damages award for lost profits, finding the projections too speculative, and ordered a new trial on other issues. The Court of Appeals reviewed the Appellate Division’s decision regarding lost profits.
Issue(s)
Whether DSI presented sufficient evidence to recover lost profits for a 20-year period for a stadium that was never built or operated, considering the business was new and lacked an established earnings record.
Holding
No, because the damages were too speculative and not within the contemplation of the parties when the contract was formed. Furthermore, the multitude of assumptions required to establish projections of profitability over the life of the contract require speculation and conjecture, making it beyond the capability of even the most sophisticated procedures to satisfy the legal requirements of proof with reasonable certainty.
Court’s Reasoning
The court emphasized that loss of future profits must be proven with reasonable certainty and must have been within the contemplation of the parties at the time of the contract. The court acknowledged that DSI’s methodology was sound but, it found the economic model’s foundations undermined the certainty of the projections. The court stated, “If it is a new business seeking to recover for loss of future profits, a stricter standard is imposed for the obvious reason that there does not exist a reasonable basis of experience upon which to estimate lost profits with the requisite degree of reasonable certainty.”
The court noted the speculative nature of projecting profits over 20 years for a facility that never existed, stating, “Quite simply, the multitude of assumptions required to establish projections of profitability over the life of this contract require speculation and conjecture, making it beyond the capability of even the most sophisticated procedures to satisfy the legal requirements of proof with reasonable certainty.”
Furthermore, the court stated, “The economic facts of life, the whim of the general public and the fickle nature of popular support for professional athletic endeavors must be given great weight in attempting to ascertain damages 20 years in the future.”
The court rejected the “rational basis” test used by the Appellate Division, reaffirming the stricter standard for proving lost profits for new businesses articulated in Cramer v Grand Rapids Show Case Co., 223 NY 63.