Kenford Co. v. County of Erie

New York Court of Appeals
67 N.Y.2d 257 (1986)

ELI5:

Rule of Law:

Damages for lost profits from a new business venture are not recoverable if they cannot be proven with reasonable certainty and were not within the contemplation of the parties at the time the contract was made.

Facts:

On August 8, 1969, the County of Erie entered into a contract with Kenford Company, Inc. and Dome Stadium, Inc. (DSI) for the construction and operation of a domed stadium.
The contract stipulated that the County would begin construction within 12 months.
The contract provided that if the parties could not agree on a 40-year lease, a pre-negotiated 20-year management contract for DSI to operate the stadium would automatically go into effect upon the stadium's completion.
The parties engaged in extensive negotiations but failed to agree on the terms of a long-term lease.
The County of Erie failed to commence construction of the stadium within the required one-year period or at any time thereafter, thereby breaching the contract.

Procedural Posture:

Kenford Company, Inc. and Dome Stadium, Inc. (plaintiffs) sued the County of Erie (defendant) in a New York trial court for breach of contract.
The trial court granted summary judgment to the plaintiffs on the issue of liability and ordered a trial on damages only.
Following a trial, a jury awarded the plaintiffs a multi-million dollar verdict, which included damages for 20 years of lost prospective profits.
The County of Erie (as appellant) appealed to the Appellate Division, an intermediate appellate court.
The Appellate Division modified the judgment, reversing the award for lost profits and dismissing that part of the plaintiffs' claim.
The plaintiffs (as appellants) appealed the dismissal of their lost profits claim to the Court of Appeals of New York, the state's highest court.

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Issue:

In a breach of contract action, may a plaintiff recover damages for 20 years of lost prospective profits from a new business venture that was never operational?

Opinions:

Majority - Per Curiam

No. A plaintiff may not recover damages for lost prospective profits from a new business venture where such damages are speculative and were not contemplated by the parties at the time of contracting. To recover lost future profits, a plaintiff must demonstrate with reasonable certainty that the damages were caused by the breach, are capable of proof without speculation, and were fairly within the contemplation of the parties when the contract was formed. The court found that DSI failed to meet this standard for two primary reasons. First, the contract's provisions for default did not suggest that the County would be liable for 20 years of lost profits, and there was no evidence to show this massive liability was within the parties' contemplation. Second, despite sophisticated economic models and expert testimony, the profits for a new, unique entertainment facility over a 20-year period are inherently speculative and cannot be proven with reasonable certainty. The multitude of assumptions about public support, sporting events, and conventions relies on conjecture, especially since there was only one other comparable stadium (the Astrodome) in existence at the time.

Analysis:

This case reaffirms New York's strict approach to awarding lost profits for new businesses, known as the 'new business rule.' It establishes that even the most sophisticated and expert-driven economic projections may be insufficient to meet the legal standard of 'reasonable certainty.' The decision emphasizes the 'contemplation of the parties' requirement from Hadley v. Baxendale, serving as a caution that massive, long-term consequential damages will not be assumed unless explicitly provided for. It also solidifies the high bar for new ventures in the entertainment industry, which the court views as particularly fickle and unpredictable, making it very difficult for such plaintiffs to recover lost future profits.

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