Caseflicks

New York Court of Appeals • 1986

Kenford Co. v. County of Erie

67 N.Y.2d 257 | 493 N.E.2d 234 | 502 N.Y.S.2d 131 | 1986 N.Y. LEXIS 18050

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Takeaway

In short, this case holds that a new venture cannot recover long-term projected profits unless those damages were contemplated by the parties and can be proved with reasonable certainty, even when supported by sophisticated expert analysis.

Background

In 1969, Erie County contracted with Kenford Company and Dome Stadium, Inc. (DSI) to construct a domed stadium near Buffalo. The County was to begin construction within one year. The parties were first to negotiate a 40-year operating lease; if they could not reach agreement within the stated period, they were to execute an appended management contract under which DSI would operate the completed stadium for 20 years.

The parties never agreed to a lease, and the County never built the stadium. Kenford and DSI sued for breach of contract in 1971. After lengthy proceedings, the County was held liable as a matter of law, and a damages-only trial produced a multimillion-dollar verdict for plaintiffs.

The Appellate Division set aside DSI's award of lost profits for the proposed 20-year management period and dismissed that claim. It concluded that the expert projections rested on too many variables to supply a rational basis for calculating profits. The Court of Appeals affirmed the dismissal, but on different grounds.

Issues

Issue #1

Whether DSI could recover projected profits from operating the unbuilt stadium for the 20-year term contemplated by the management contract.

Holding

No. DSI did not show that the County's liability for 20 years of lost operating profits was within the parties' contemplation when they made the contract or when the breach occurred.

Reasoning

New York permits recovery of lost future profits only when the loss was caused by the breach, can be proved with reasonable certainty, and was fairly within the parties' contemplation when they contracted. Damages cannot be speculative, remote, or attributable to intervening causes.

The contract did not provide that the County would be responsible for DSI's lost profits if the stadium was not constructed. Its default provisions likewise did not indicate that the County had assumed the potentially enormous risk of paying profits projected over the full 20-year operating period.

Where the agreement is silent, the relevant practical question is what the parties would reasonably have concluded had they considered the risk. The evidence did not establish that these parties would have understood the County to be undertaking liability for two decades of DSI's anticipated profits.

Issue #2

Whether DSI proved its projected 20-year lost profits with the reasonable certainty required for a new business.

Holding

No. Even though DSI used sophisticated expert economic evidence, its projections depended on too many uncertain assumptions to establish lost profits with reasonable certainty.

Reasoning

A new business faces a stricter proof requirement because it lacks an operating history from which profits can reliably be estimated. DSI's proposed stadium had never operated, so its claimed profits could not be grounded in its own demonstrated performance.

DSI's experts used historical information from other stadiums and a market study of the Buffalo area. The Court acknowledged that the methodology reflected advanced economic analysis and that DSI had submitted an extensive body of evidence. But the quantity and sophistication of the proof did not eliminate the legal need for reasonable certainty.

The model assumed that the stadium would be completed, would be available for use, and would operate successfully for 20 years while attracting professional sports, entertainment events, meetings, conventions, and related business. At the time of breach, only Houston's Astrodome offered a comparable domestic example. The necessary assumptions about public demand, sporting events, entertainment, and long-term economic conditions made the projected profits conjectural.

The Court emphasized the special uncertainty of entertainment-related profits, which depend heavily on changing public tastes and support for professional athletics. It therefore rejected the Appellate Division's more permissive 'rational basis' test and adhered to New York's requirement of proof with reasonable certainty.