New York Law Review

Tag: breach of contract

  • Bates Advertising USA, Inc. v. 498 Seventh, LLC, 7 N.Y.3d 115 (2006): Enforceability of Rent Abatement Clause as Liquidated Damages

    7 N.Y.3d 115 (2006)

    A rent abatement clause in a commercial lease is enforceable as liquidated damages if the damages from a breach were not readily ascertainable at the time of contracting, and the abatement is not conspicuously disproportionate to the foreseeable losses.

    Summary

    Bates Advertising sued its landlord, 498 Seventh, LLC, for breach of a commercial lease, seeking rent abatement under a clause specifying penalties for delays in building improvements. The Court of Appeals held the rent abatement clause enforceable as liquidated damages. The Court reasoned that the damages resulting from the landlord’s delays were difficult to ascertain when the lease was signed and that the rent abatement was not disproportionate to the potential losses Bates might suffer due to the unfinished improvements. This case highlights the importance of carefully drafted liquidated damages clauses in complex commercial agreements.

    Facts

    Bates Advertising entered into a 16-year lease with 498 Seventh, LLC, to relocate its headquarters. The lease included Exhibit C, which detailed improvements the landlord agreed to make. Part E of Exhibit C listed 11 required alterations. The lease contained a rent abatement clause: if the landlord did not complete specific work by a deadline, Bates was entitled to rent abatement for each day of delay. Bates moved into the building on March 22, 1999, but some improvements remained unfinished.

    Procedural History

    Bates sued 498 Seventh, LLC, claiming breach of contract and seeking rent abatement. Supreme Court initially dismissed the causes of action based on the rent abatement clause, deeming it an unenforceable penalty. The Appellate Division reversed, reinstating the rent abatement claims. After a bench trial, Supreme Court found 498 Seventh, LLC, breached the lease and awarded Bates rent abatement credits. The Appellate Division affirmed. The Court of Appeals granted permission to appeal and affirmed the lower court’s rulings.

    Issue(s)

    Whether the rent abatement clause in the commercial lease constitutes an enforceable liquidated damages provision or an unenforceable penalty.

    Holding

    Yes, the rent abatement clause is an enforceable liquidated damages provision because the damages resulting from the landlord’s delays were difficult to ascertain at the time of contracting, and the abatement was not conspicuously disproportionate to the potential losses.

    Court’s Reasoning

    The Court of Appeals determined that whether a contractual provision represents enforceable liquidated damages or an unenforceable penalty is a question of law. The party challenging the liquidated damages (here, the landlord) must show either that the damages were readily ascertainable at the time of contracting or that the liquidated damages are conspicuously disproportionate to the foreseeable losses. The Court found that 498 Seventh, LLC, failed to demonstrate either. The Court dismissed the landlord’s argument that the clause was intended to incentivize the landlord, stating, “Liquidated damages are not transformed into a penalty merely because they operate in this way as well, so long as they are not grossly out of scale with foreseeable losses.” The Court agreed with the Appellate Division that the rent abatements were not conspicuously disproportionate to Bates’s foreseeable losses because the abatement was tied to the length of the landlord’s nonperformance and the importance of the incomplete work. The Court deferred to the affirmed factual findings of the lower courts that the landlord had materially breached the lease. The Court emphasized that the affirmed factual findings are conclusive and binding.

  • Heary Bros. Lightning Protection Co. v. Intertek Testing Services, 3 N.Y.3d 615 (2004): Limiting Lost Profit Damages to Foreseeable Period After Breach

    Heary Bros. Lightning Protection Co. v. Intertek Testing Services, 3 N.Y.3d 615 (2004)

    Lost profit damages for breach of contract are limited to the period during which the breached contractual duty would have had a commercial value to the plaintiff; damages are not recoverable for periods after the underlying value of the contractual obligation has ceased.

    Summary

    Heary Bros. sued Intertek for breach of contract after Intertek stopped certifying Heary Bros.’ lightning protection systems. Heary Bros. claimed lost profits through 2014. The New York Court of Appeals held that Heary Bros. could not recover lost profits after April 2000. The court reasoned that after the National Fire Protection Association definitively rejected the draft industry standard (NFPA 781) Heary Bros.’ products were tested against, Intertek’s certification of compliance with that standard would have no commercial value. Thus, Intertek’s breach could not have caused Heary Bros. to lose profits after that date.

    Facts

    Heary Bros. manufactured and distributed lightning protection systems. Intertek, a testing laboratory, agreed in 1994 to test and certify Heary Bros.’ “Early Streamer Emission” (ESE) products. These products were tested against the requirements of a draft industry standard, “Draft NFPA 781.” Heary Bros. unsuccessfully attempted to have this draft approved as the official industry standard by the National Fire Protection Association (NFPA). In 1998, Intertek stopped allowing Heary Bros. to use its certification mark on its products, leading Heary Bros. to sue for breach of contract. On April 28, 2000, the NFPA definitively rejected Draft NFPA 781.

    Procedural History

    Heary Bros. sued Intertek. The jury found Intertek breached the contract and awarded Heary Bros. $2,208,360 in lost profits through November 2000 (historical data) and through 2014 (projections). The Supreme Court upheld the liability verdict but ordered a new trial on damages unless Heary Bros. accepted a reduced amount. The Appellate Division modified, ordering a new trial on damages limited to the period between September 1998 and April 2000. Heary Bros. appealed to the Court of Appeals.

    Issue(s)

    Whether legally sufficient evidence supported an award of lost profit damages attributable to any time after April 2000, when the relevant draft industry standard was rejected.

    Holding

    No, because after the NFPA rejected Draft NFPA 781, Intertek’s certification of Heary Bros.’ products against that standard would have had no commercial value; therefore, Intertek’s breach could not have caused Heary Bros. to lose profits after that date.

    Court’s Reasoning

    The Court of Appeals agreed with the Appellate Division, finding no legally sufficient evidence to support lost profit damages after April 2000. The court emphasized the significance of the NFPA’s rejection of Draft NFPA 781 on April 28, 2000. Even though the contract did not explicitly require tests to be against an industry standard (“the published Standard or Standards, if any, applicable from time to time”), the court found no evidence suggesting that certification against a rejected standard would have had commercial value to Heary Bros., or that the absence of such certification could have caused Heary Bros. to lose profits. The court distinguished testing against customer-specific standards from testing against an abandoned industry standard. The court reasoned that no credible testing laboratory could certify products as complying with a rejected standard, and Heary Bros. was not entitled to, and could not benefit from, such a meaningless certification. The court concluded, “There was, in short, no evidence from which a jury could conclude that defendant’s breach of contract caused plaintiffs any damages after April 2000.” The key legal rule applied was that damages must be causally linked to the breach and reasonably foreseeable. In this case, the causal link between the breach and the lost profits was broken when the underlying standard became obsolete.

  • Indemini v. Beth Israel Medical Center, 4 N.Y.3d 65 (2004): Exhaustion of Administrative Remedies for Physician Residents

    4 N.Y.3d 65 (2004)

    A medical resident alleging wrongful termination of professional privileges must exhaust administrative remedies under Public Health Law § 2801-b before bringing a breach of contract action in court.

    Summary

    Anne Indemini, a medical resident, was terminated from her residency at Beth Israel Medical Center. She sued for breach of contract, alleging wrongful termination due to her advocacy for staff rights. The New York Court of Appeals held that Indemini was required to exhaust her administrative remedies under Public Health Law § 2801-b before bringing a court action. The court reasoned that the statute, designed to address improper practices by hospitals, applies to medical residents as physicians with professional privileges, and requiring exhaustion allows for expert review and promotes pre-litigation resolution.

    Facts

    Anne Indemini was terminated from her second-year medical residency at Beth Israel Medical Center due to a disciplinary history and an incident of inappropriate conduct. She grieved the decision, but the Medical Center’s committees upheld the termination. Indemini then filed a breach of contract action, alleging wrongful termination based on her advocacy for staff rights and union activities.

    Procedural History

    The Supreme Court dismissed Indemini’s complaint for lack of subject matter jurisdiction, citing her failure to exhaust administrative remedies under Public Health Law § 2801-b. The Appellate Division affirmed the Supreme Court’s decision. The New York Court of Appeals granted leave to appeal and affirmed the Appellate Division’s order.

    Issue(s)

    Whether a medical resident, alleging wrongful termination of professional privileges, must exhaust administrative remedies under Public Health Law § 2801-b before bringing a breach of contract action in court.

    Holding

    Yes, because Public Health Law § 2801-b applies to medical residents as physicians who have been denied professional privileges, and exhaustion of administrative remedies allows an expert body to review the complaint initially and promotes pre-litigation resolution.

    Court’s Reasoning

    The Court of Appeals reasoned that Public Health Law § 2801-b was enacted to provide a remedy for physicians discriminated against or unjustly denied staff membership or professional privileges. The court determined that a medical resident is a “physician” and participation in a residency program grants “professional privileges.” Therefore, the statute’s protections extend to residents. The court emphasized the “dual purpose” of the statute: “allow[ing] an expert body to initially review the physician’s complaint and [ ] promot[ing] prelitigation resolution” (quoting Gelbard v Genesee Hosp., 87 NY2d 691, 696 [1996]). The court further noted that review by the Public Health Council (PHC) provides an impartial forum with expertise in medical matters, protecting both the physician and the hospital. The court distinguished cases cited by the plaintiff, noting that those cases involved terminations based solely on allegations of sexual misconduct, an issue not present in Indemini’s case. The court quoted Matter of Cohoes Mem. Hosp. v Department of Health of State of N.Y., 48 NY2d 583, 589 [1979]: “[T]he legislature, by enacting section 2801-b of the Public Health Law, intended to provide the physician and the hospital with a professionally competent forum in which to resolve their disputes in an effort to avoid litigation, if possible… [The PHC] us[es] its professional expertise to identify and discourage groundless claims, to mediate and to conciliate disputes between health-care professionals, and to offer the court some aid in resolving such disputes, should the parties fail to come to an agreement on their own.” The Court ultimately concluded that a medical resident’s proper recourse for challenging termination from a residency program is the grievance process set out in Public Health Law § 2801-b.

  • Spodek v. Park Property Development Associates, 96 N.Y.2d 577 (2001): Prejudgment Interest on Unpaid Installments

    96 N.Y.2d 577 (2001)

    In a breach of contract action involving a promissory note with monthly interest and principal installment payments, a creditor is entitled to prejudgment interest on both the unpaid interest and principal from the date each payment was due until liability is fixed.

    Summary

    This case addresses whether a creditor can recover prejudgment interest under CPLR 5001 in a breach of contract action concerning a promissory note that stipulated monthly interest and principal payments. The New York Court of Appeals held that the creditor is entitled to simple interest on both the unpaid interest and principal payments, calculated from the date each payment was due under the note’s terms until the date liability was established. This decision affirms the principle that prejudgment interest serves to make the aggrieved party whole by compensating them for the time they were deprived of the money.

    Facts

    In 1980, Defendant executed a promissory note for $1,437,500 with interest accruing at 8% per annum, payable monthly. For the first 60 months, only interest payments were required. Starting with the 61st month, principal payments at 1% per annum were to be made until the remaining balance was due on December 31, 2000. Defendant made no payments between 1980 and 1997. Plaintiff sued in 1997, seeking repayment of principal and interest installments owed from 1991 onward, acknowledging the statute of limitations barred claims for earlier defaults.

    Procedural History

    Plaintiff moved for summary judgment, which the Supreme Court denied. The Appellate Division reversed and granted summary judgment to the Plaintiff. On remand, Supreme Court awarded Plaintiff $1,094,083.60 for unpaid interest and principal but denied prejudgment interest. The Appellate Division reversed the denial of prejudgment interest and remitted the case for calculation of such interest. The New York Court of Appeals granted Defendant leave to appeal.

    Issue(s)

    Whether, in a breach of contract action involving a promissory note providing for monthly interest and principal payments, the creditor is entitled to prejudgment interest under CPLR 5001 on the unpaid interest and principal payments from the date each payment became due until the date liability was established.

    Holding

    Yes, because CPLR 5001(a) permits a creditor to recover prejudgment interest on unpaid interest and principal payments awarded from the date each payment became due under the terms of the promissory note to the date liability is established.

    Court’s Reasoning

    The Court of Appeals reasoned that CPLR 5001(a) mandates the award of interest in breach of contract actions to make the aggrieved party whole. The Court distinguished between compound interest (interest on interest) and simple interest (interest on principal only), clarifying that CPLR 5001 provides for simple interest. The Court found Young v Hill, 67 NY 162 (1876) and Giventer v Arnow, 37 NY2d 305 (1975), which disallowed compound interest, inapplicable because those cases involved agreements for compound interest, while this case interprets a statutory provision for simple interest. The court emphasized that awarding prejudgment interest on overdue payments compensates the plaintiff for the defendant’s use of money rightfully belonging to the plaintiff during the period of default. As Chief Judge Cardozo stated in Prager v New Jersey Fid. & Plate Glass Ins. Co., 245 NY 1, 5-6: “While the dispute as to value was going on, the defendant had the benefit of the money, and the plaintiff was without it. Interest must be added if we are to make the plaintiff whole. * * * If [defendant] chose to keep the money, it should pay for what it kept.” The Court also cited Love v State of New York, 78 NY2d 540, 545, noting that a debtor who has used the money has presumably benefited from it and should pay the creditor for that benefit in the form of interest. The court therefore held that the plaintiff is entitled to interest under CPLR 5001(a) on the overdue interest and principal payments from the accrual of the action for breach of contract.

  • Lobosco v. New York Telephone/NYNEX, 96 N.Y.2d 313 (2001): Employee Handbook Disclaimers and At-Will Employment

    96 N.Y.2d 313 (2001)

    An express disclaimer in an employee handbook, stating that the handbook does not create contractual rights and that employment is at-will, is enforceable and prevents an employee from claiming breach of contract based on handbook provisions.

    Summary

    Anthony Lobosco sued New York Telephone/NYNEX for breach of contract, alleging he was fired for refusing to testify untruthfully and for reporting a fellow employee’s misconduct. His claim was based on a provision in NYNEX’s employee manual (Code of Business Conduct) assuring protection against reprisal for reporting violations. However, the manual also contained a disclaimer stating it was not a contract and that employment was at-will. The New York Court of Appeals held that the disclaimer was enforceable, preventing Lobosco from claiming a contractual right to continued employment based on the manual’s no-reprisal provision, thus reaffirming at-will employment principles.

    Facts

    Anthony Lobosco was employed by NYNEX for 27 years. He became a party-witness for NYNEX in a litigation. Lobosco alleged that NYNEX counsel instructed him to limit his testimony and pressured him to testify untruthfully. He also claimed he reported a fellow employee’s concealment of documents. Subsequently, NYNEX fired Lobosco, ostensibly for having unreported communications with the adversaries’ principals. NYNEX distributed a “Code of Business Conduct” to employees, which included a section assuring protection against reprisal for reporting violations. The Code also included a disclaimer stating it was not a contract of employment and could be modified at any time without notice.

    Procedural History

    The Supreme Court initially dismissed all of Lobosco’s claims except for the breach of contract claim, holding that the no-reprisal provision superseded the general disclaimer. The Appellate Division reversed, dismissing the entire complaint, finding that Lobosco failed to plead or assert reliance on the manual. The Court of Appeals affirmed the Appellate Division’s decision, but on different reasoning, focusing on the enforceability of the disclaimer.

    Issue(s)

    Whether an express disclaimer in an employee handbook negates any contractual obligations that might otherwise arise from the handbook’s provisions, thereby preserving the at-will employment relationship.

    Holding

    Yes, because the explicit disclaimer of a contractual relationship contained in the employee manual clearly preserves NYNEX’s right to maintain an at-will employment relationship with its employees.

    Court’s Reasoning

    The Court of Appeals relied on the principle that employment for an indefinite period is presumed to be at-will, terminable by either party at any time for any reason. While New York recognizes an exception for breach of contract when an employer provides an express written policy limiting discharge rights and the employee relies on that policy (Weiner v McGraw-Hill, Inc.), this exception does not apply when a clear disclaimer exists. The court emphasized that routinely issued employee manuals should not lightly be converted into binding employment agreements, especially when conspicuous disclaiming language is present. The court stated: “An employee seeking to rely on a provision arguably creating a promise must also be held to reliance on the disclaimer.” The Court found that the disclaimer prevented the creation of a contract, negating any protection from termination Lobosco may have inferred from the manual’s no-reprisal provision. The Court also noted that the Code itself contained a procedure wherein the at-will employment relationship can be modified – and that is by written agreement signed by both parties. The Court specifically stated, “To the extent that Waldman v NYNEX Corp. suggests otherwise, it should not be followed.”

  • Inchaustegui v. 666 5th Avenue Ltd. Partnership, 96 N.Y.2d 111 (2001): Damages for Failure to Procure Insurance

    Inchaustegui v. 666 5th Avenue Ltd. Partnership, 96 N.Y.2d 111 (2001)

    When a tenant breaches a lease agreement by failing to obtain liability insurance for the landlord’s benefit, and the landlord has its own insurance, the landlord’s damages are limited to its out-of-pocket expenses, not the full underlying tort liability and defense costs.

    Summary

    A tenant, Petrofin, breached a lease agreement by failing to name the landlord, 666 5th Avenue Limited Partnership, as an additional insured on its liability insurance policy. An employee of the tenant was injured on the premises and sued the landlord, who then brought a third-party action against the tenant. The New York Court of Appeals addressed the measure of damages recoverable by the landlord. The Court held that because the landlord had its own insurance covering the risk, its recovery was limited to out-of-pocket expenses (premiums, deductibles, co-payments, and increased future premiums) caused by the tenant’s breach, and the common-law collateral source rule does not apply.

    Facts

    Petrofin, a tenant, agreed in a lease to maintain liability insurance and name the landlord, 666 5th Avenue Limited Partnership, as an additional insured. Petrofin obtained a policy but failed to include the landlord as an insured. Plaintiff, Petrofin’s employee, was injured on the premises and sued the landlord. The landlord then sued Petrofin for breach of the lease agreement.

    Procedural History

    The Supreme Court granted the landlord’s motion for summary judgment, finding Petrofin breached the lease. However, the court limited damages to the cost of maintaining the insurance policy for the year of the accident. The Appellate Division modified, allowing the landlord to recover out-of-pocket expenses arising from the liability claim and not covered by the landlord’s insurance. The dissenting Justices would have awarded the landlord the full amount of the loss. The New York Court of Appeals affirmed the Appellate Division’s modified order.

    Issue(s)

    Whether the landlord, who procured its own insurance, can recover the full amount of the settlement and defense costs in the underlying tort claim from the tenant who breached the lease agreement to obtain insurance for the landlord, or whether the landlord’s recovery is limited to its out-of-pocket expenses?

    Holding

    No, because the landlord obtained its own insurance covering the risk, it sustained no loss beyond its out-of-pocket costs. The common-law collateral source rule does not apply in this breach of contract case.

    Court’s Reasoning

    The Court reasoned that lease provisions requiring a tenant to procure insurance for the landlord are generally enforceable. A landlord without knowledge of the tenant’s failure and who is left uninsured can recover the full tort liability and defense costs. However, in this case, the landlord procured its own insurance. The Court cited Mavashev v Shalosh Realty, 233 A.D.2d 301 (1996) and Richfield Props. v Galaxy Knitting Mills, 269 A.D.2d 516 (2000) to support limiting damages to the landlord’s out-of-pocket expenses. The Court stated that the landlord “obtained its own insurance and therefore sustained no loss beyond its out-of-pocket costs… Accordingly, it may not now look to the tenant for the full amount of the settlement and defense costs in the underlying tort claim.”

    The Court distinguished Kinney v G. W. Lisk Co., 76 N.Y.2d 215 (1990), noting that the issue of minimizing damages by insurance the general contractor obtained was not raised or considered in that case.

    The Court rejected applying the common-law collateral source rule, stating it is a tort concept with a punitive dimension not aligned with contract law. Contract damages are limited to the economic injury caused by the breach, aiming to place the injured party in as good a position as if the contract had been performed. The Court highlighted that a tenant’s potential liability without insurance and the risk of eviction are sufficient disincentives for non-compliance, removing the need to invoke the collateral source rule as an incentive. As the court stated, the landlord “is entitled to be placed in as good a position as it would have been had the tenant performed. Its recovery is limited to the loss it actually suffered by reason of the breach”.

  • Maas v. Cornell University, 94 N.Y.2d 87 (1999): Limits on Breach of Contract Claims Against Universities

    Maas v. Cornell University, 94 N.Y.2d 87 (1999)

    An employee cannot bring a breach of contract action against a university for failing to follow its internal procedures for resolving disputes, absent evidence of an express agreement or detrimental reliance.

    Summary

    Professor Maas sued Cornell University, alleging breach of contract for failing to adhere to its internal procedures when handling sexual harassment claims against him. The New York Court of Appeals held that Maas could not maintain a plenary breach of contract action. The Court reasoned that universities are best suited to handle internal matters and that the University’s adherence to its own procedures does not create a contractual relationship that is subject to judicial review in a plenary action. The proper avenue for judicial review is a CPLR Article 78 proceeding, which Maas initially opposed.

    Facts

    James Maas, a tenured psychology professor at Cornell University, was accused of sexual harassment by four students in 1994. The University processed the complaints under its internal procedures. Following an investigation and hearings, the Professional Ethics Committee found that Maas had engaged in unprofessional conduct and sexual harassment. The Dean of the College upheld the Committee’s determination, and an appeal to the Provost was rejected. Maas remained a tenured faculty member.

    Procedural History

    Maas filed suit against Cornell, alleging multiple causes of action, including breach of contract and negligence. The Supreme Court dismissed most of the claims, refusing to convert the action into a CPLR Article 78 proceeding. The Appellate Division affirmed. After remittal, the Supreme Court granted summary judgment to Cornell on the remaining negligence claims. The Appellate Division affirmed again, rejecting Maas’s request for CPLR Article 78 conversion because he had previously opposed it. The New York Court of Appeals granted Maas leave to appeal.

    Issue(s)

    1. Whether a university’s internal regulations and procedures create a contractual relationship with its employees, such that a violation of those procedures can form the basis for a breach of contract action.

    2. Whether the lower courts erred in refusing to convert Maas’s plenary action into a CPLR Article 78 proceeding.

    Holding

    1. No, because administrative decisions of educational institutions involve specialized professional judgment, and these institutions are generally better suited to make final decisions concerning internal matters.

    2. No, because Maas initially opposed the conversion to a CPLR Article 78 proceeding and cannot now seek such relief after his plenary action was dismissed.

    Court’s Reasoning

    The Court emphasized that universities are best suited to resolve internal disputes, and courts should exercise restraint in applying traditional legal rules to academic matters. The Court stated, “In these so-called ‘university’ cases, CPLR article 78 proceedings are the appropriate vehicle because they ensure that the over-all integrity of the educational institution is maintained and, therefore, protect more than just the individual’s right to employment.”

    The Court found that Maas’s breach of contract claim failed because he did not demonstrate that Cornell intended its internal procedures to become part of his employment contract. The Court distinguished the case from wrongful termination disputes, where detrimental reliance on an employer’s written policies can create contractual obligations. The Court reasoned that “Cornell cannot be held to have contractually bound itself to follow these internal rules when it hired Maas.”

    The Court also cited Restatement (Second) of Contracts § 4, noting that an implied-in-fact contract requires mutual agreement and an intent to promise, which were not present in this case. The Court noted that “the concept of handbooks as part of a contract with commitments and expectations on both sides’ is not universally accepted”.

    The Court distinguished Tedeschi v. Wagner College, stating that while universities must substantially observe their procedures for suspension or expulsion, the legal theory underlying that rule is not well-defined and does not necessarily create a contract. The Court concluded that Maas failed to plead a cognizable breach of contract action and affirmed the lower courts’ decisions.

  • Brushton-Moira Central School District v. Fred H. Thomas Associates, P.C., 91 N.Y.2d 362 (1998): Date for Calculating Breach of Contract Damages

    Brushton-Moira Central School District v. Fred H. Thomas Associates, P.C., 91 N.Y.2d 362 (1998)

    In a breach of contract action involving defective design or construction, damages are generally ascertained as of the date of the breach, which is typically the completion of the work, and prejudgment interest is calculated from that date.

    Summary

    Brushton-Moira Central School District sued Fred H. Thomas Associates for breach of contract and malpractice related to the installation of defective insulated panels in a school building. The New York Court of Appeals held that damages for the breach should be measured as of the date the cause of action accrued (completion of the work) and not the date of trial, and prejudgment interest should be awarded from that earlier date. This decision reinforces the principle that damages are intended to place the non-breaching party in the same position as if the contract had been performed, and that measuring damages at the time of trial could incentivize a failure to mitigate damages.

    Facts

    The Brushton-Moira Central School District hired Fred H. Thomas Associates as the architect for renovations, including replacing windows with insulated panels, to conserve energy. The architect recommended specific panels that were installed by December 12, 1980. A certificate of occupancy was issued on April 9, 1982. By the summer of 1982, the panels began to deteriorate and allow water penetration.

    Procedural History

    The school district sued the architect for professional malpractice and breach of contract in 1984. The Supreme Court initially dismissed the malpractice claim, finding only economic damages were sought and dismissed the breach of contract claim because the defendant obtained a warranty from the manufacturer. The Appellate Division reversed, granting judgment to the plaintiff on the breach of contract claim and remanding for a trial on damages, measured as of the date of the trial. After a damages trial, the Supreme Court awarded damages measured as of the trial date, less a setoff, plus prejudgment interest from the trial date. The Appellate Division modified, awarding prejudgment interest from April 9, 1982. The architect appealed to the Court of Appeals.

    Issue(s)

    1. Whether, in a breach of contract action for defective design or construction, damages should be measured as of the date of the breach or the date of the trial?

    2. Whether prejudgment interest should be awarded from the date of the accrual of the cause of action or the date of the trial?

    Holding

    1. No, because damages for breach of contract are ordinarily ascertained as of the date of the breach to return the parties to the point at which the breach arose and place the non-breaching party in as good a position as if the contract had been performed.

    2. Yes, because CPLR 5001(b) mandates that interest shall be computed from the earliest ascertainable date the cause of action existed, reflecting that damages are properly ascertained as of the date of the breach.

    Court’s Reasoning

    The Court of Appeals reasoned that the Appellate Division erred in holding that damages should be measured as of the date of the trial. The court stated, “[i]t has long been recognized that the theory underlying damages is to make good or replace the loss caused by the breach of contract.” The goal is to return the parties to the position they would have been in had the contract been performed. The court cited Rodriguez & Co. v Moore-McCormack Lines, 32 NY2d 425, 429, to support the premise that contract damages are ordinarily ascertained as of the date of the breach.

    The Court emphasized that the appropriate measure of damages is the cost to repair the defects as of the date of the breach or, if irreparable, the difference in value between a properly constructed structure and the one actually built. It further explained that CPLR 5001(a) provides that interest shall be recovered upon a sum awarded for a breach of contract, and CPLR 5001(b) mandates that interest be computed from the earliest ascertainable date the cause of action existed. According to the Court, awarding interest from a date other than the accrual date could lead to anomalous results. The court explained, “[i]n view of the clear statutory direction that interest must be computed from the date of accrual, we need not deviate from the general rule that damages should be measured as of that same date.”

    Finally, the Court noted that measuring replacement costs as of the trial date might contradict the duty to mitigate damages. “There would be no incentive to mitigate damages if plaintiff could wait until trial to recover damages measured as of the trial date and, in addition, receive interest from the earlier date of accrual.”

  • People v. Curdgel, 83 N.Y.2d 862 (1994): Admissibility of Grand Jury Testimony After Defendant Breaches Plea Agreement

    People v. Curdgel, 83 N.Y.2d 862 (1994)

    When a defendant breaches a plea agreement after providing Grand Jury testimony, the prosecution may use that testimony against the defendant at trial, provided the use was a foreseeable benefit bargained for in the agreement.

    Summary

    Curdgel agreed to testify against his accomplices in exchange for a reduced sentence. After testifying before a Grand Jury, he publicly recanted his testimony. The prosecution then used his Grand Jury testimony against him at his own trial, resulting in a conviction. Curdgel argued he was entitled to specific performance of the plea agreement and that his Grand Jury testimony should not have been used against him. The New York Court of Appeals held that because Curdgel breached the agreement, the prosecution could use his prior testimony, as its use was a foreseeable benefit of the plea agreement.

    Facts

    Curdgel admitted to involvement in an arson that resulted in four deaths. He agreed to cooperate with the investigation and testify against his accomplices in exchange for a lenient sentence. He signed a waiver of immunity, relinquishing his privilege against the use of his testimony in any proceeding. After testifying before the Grand Jury, Curdgel publicly recanted his testimony, apologizing to his accomplices.

    Procedural History

    Curdgel was convicted of murder and related charges. The Appellate Division affirmed the conviction. The Court of Appeals granted leave to appeal to consider the admissibility of Curdgel’s Grand Jury testimony and the plea agreement.

    Issue(s)

    Whether the prosecution could use Curdgel’s Grand Jury testimony against him at his trial after he publicly recanted the testimony, thus breaching the plea agreement?

    Holding

    Yes, because Curdgel breached the plea agreement by recanting his testimony, the prosecution was entitled to use the Grand Jury testimony against him at his trial, as this was a foreseeable benefit of the agreement and the People are permitted to keep what they already had.

    Court’s Reasoning

    The Court of Appeals relied on the principle of “essential fairness” in plea agreements. It distinguished this case from situations where defendants fully comply with their plea agreements. The court cited People v. Evans, stating that “each party to the voluntarily entered-into plea agreement is entitled to the benefits emanating from the agreement which cannot be retroactively vitiated.” The court reasoned that Curdgel’s breach rendered the agreement valueless to the People, justifying their refusal to call him as a witness. His Grand Jury testimony, induced by the plea agreement, was a benefit the prosecution had already obtained. The court distinguished People v. Spitaleri, which bars the use of withdrawn guilty pleas, noting that the Spitaleri doctrine rests entirely on fairness grounds. Here, fairness dictated allowing the prosecution to use the testimony, as Curdgel’s conduct caused him to lose the benefit of his bargain, while the People were permitted to keep what they already had. The court emphasized that the use of his testimony was a counseled, foreseeable use, and a benefit that should not be retroactively vitiated. Ultimately, since Curdgel undermined the agreement’s purpose, he could not then prevent the State’s use of the information he provided.

  • Ashland Management Inc. v. Janien, 82 N.Y.2d 395 (1993): Recovering Lost Profits and Defining Trade Secrets

    Ashland Management Inc. v. Janien, 82 N.Y.2d 395 (1993)

    Lost profits are recoverable in breach of contract actions if they were contemplated by the parties at the time of contracting and are capable of measurement with reasonable certainty; a trade secret is a formula, pattern, device, or compilation of information providing a competitive advantage that is not generally known or readily ascertainable.

    Summary

    Ashland Management sued its former employee, Janien, alleging misappropriation of trade secrets after Janien unsuccessfully attempted to sell an investment model to Ashland. Janien counterclaimed for breach of contract, claiming Ashland improperly terminated an agreement to use his model. The New York Court of Appeals held that Janien was entitled to damages for lost profits because the parties contemplated such damages in the agreement and the amount was reasonably certain. It also affirmed the lower court’s finding that Ashland’s investment model was not a trade secret because its key components were publicly available.

    Facts

    Ashland, an investment advisory company, used a stock selection model called Alpha. Janien, Hickox’s (Ashland’s chairman) brother-in-law, developed a similar model called Eta. Ashland and Janien negotiated a contract (Proposal 6) for Ashland to use Eta, with Janien receiving royalties. Proposal 6 included projections of minimum assets under management. Before disclosing the details of Eta, Janien presented a nondisclosure agreement, which Hickox refused, leading to Janien’s termination. Ashland sought to enjoin Janien from using Eta, arguing it relied on Ashland’s trade secret Alpha, which Janien disputed, counter-claiming for breach of contract.

    Procedural History

    The trial court found a contract existed, Ashland breached it, and Janien was entitled to lost profits. It also held that Alpha was not a trade secret. The Appellate Division modified, finding no joint venture but upholding the breach of contract claim based on Ashland’s failure to act in good faith. Ashland appealed to the New York Court of Appeals.

    Issue(s)

    1. Whether Janien could recover lost profits for Ashland’s breach of contract.
    2. Whether Ashland’s Alpha investment model constituted a trade secret.

    Holding

    1. Yes, because the parties contemplated lost profits as damages in the event of breach, and those profits were capable of being calculated with reasonable certainty.
    2. No, because the key components of Alpha were publicly available, making it not a trade secret.

    Court’s Reasoning

    Regarding lost profits, the Court of Appeals emphasized that such damages are recoverable if they were within the contemplation of the parties when the contract was made and are capable of measurement with reasonable certainty. The court noted that Proposal 6 included projections of minimum funds under management and provided for Janien to receive 15% of gross revenues, indicating the parties contemplated lost profits. Distinguishing from Kenford Co. v. County of Erie, the court found the projections in Proposal 6 were based on careful analysis and not undue speculation. Regarding the trade secret claim, the court cited the Restatement of Torts definition of a trade secret: “any formula, pattern, device or compilation of information which is used in one’s business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it.” The court deferred to the trial court’s finding that Alpha’s key financial criteria were public knowledge and the mathematical formulas were readily reproducible by financial analysts, making it not a trade secret. The court stated, “There was conflicting evidence on the point but the trial court chose to credit defendant’s expert who testified that a financial analyst could, based on the public disclosures made by Ashland, reproduce the calculations without access to the internal computer commands which constitute the Alpha software.”