New Valley Corp. v. United States
72 Fed. Cl. 411, 2006 U.S. Claims LEXIS 257, 2006 WL 2513067 (2006)
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Rule of Law:
Damages measured by the loss of the inherent market value of a promised performance constitute direct damages, not consequential damages or lost profits, even if that value would have been realized through an assignment or sale to a third party.
Facts:
- During the 1980s, Western Union Telegraph Company was in financial distress and began selling off assets, including its Westar satellite division.
- In 1984, Western Union contracted with the National Aeronautics and Space Administration (NASA) for a 'best efforts' launch of its Westar VI-S satellite aboard the Space Shuttle.
- In January 1986, the Space Shuttle Challenger was lost, prompting a reevaluation of the nation's launch program.
- Following the disaster, President Reagan decided the Space Shuttle would no longer be used for commercial launches.
- NASA subsequently repudiated its launch contract with Western Union.
- In January 1989, Western Union sold its Westar Division assets, including the Westar VI-S satellite, to Hughes Communications, Inc.
- The sale to Hughes did not include the now-breached NASA launch contract.
Procedural Posture:
- Following its bankruptcy, New Valley Corp. (as successor to Western Union) sued the United States in the U.S. Court of Federal Claims for NASA's breach of contract.
- The court of first instance previously resolved the issue of liability in New Valley's favor, finding that NASA had anticipatorily repudiated the contract.
- The United States (defendant) then moved for summary judgment on the issue of damages, arguing that the contract's limitation of liability clause barred New Valley's claim.
- New Valley (plaintiff) cross-moved for summary judgment, seeking an award of $43.3 million in damages.
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Issue:
Do the damages sought by New Valley, measured by the lost value of an assignable launch contract that it would have sold as part of a larger asset sale, constitute recoverable direct damages rather than consequential damages or lost profits barred by the contract's limitation of liability clause?
Opinions:
Majority - Judge Wiese
Yes, the damages sought constitute direct damages. Direct damages are measured by the loss of the value of the performance promised by the breaching party, whereas consequential damages are secondary consequences of the non-performance. Here, the damages claimed represent the market value of the very thing NASA promised: an assignable launch contract. This is a direct loss because it is the value of the performance itself, not a loss arising from a separate, collateral undertaking. The defendant's breach deprived Western Union of the inherent value of the contract, which could have been realized upon its sale to Hughes. This gain is synonymous with the value of the bargained-for performance and therefore constitutes general, not consequential, damages. However, the plaintiff's specific calculation is incorrect because it improperly includes the diminution in the satellite's value (a consequential damage) and uses an abstract market price instead of the actual price a willing buyer (Hughes) would have paid.
Analysis:
This decision provides a crucial clarification on the distinction between direct and consequential damages, particularly in government contracts with liability-limiting clauses. It establishes that the lost market value of a contractual right itself is a direct damage, preventing a breaching party from using a 'no consequential damages' clause to evade liability for the core value of its broken promise. The ruling reinforces that the measure of damages should be tied to the actual, ascertainable loss—what a specific party would have paid in a real-world transaction—rather than a more abstract market valuation. This provides a more precise framework for calculating damages when a breached contract was intended to be sold or assigned.
