Shannon L. Haslund v. Simon Property Group, Inc.
378 F.3d 653, 2004 WL 1753542 (2004)
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Rule of Law:
A plaintiff in a breach of contract case must prove damages to a reasonable degree of certainty. Failure to provide non-speculative evidence of actual financial loss, even when a breach has occurred, entitles the plaintiff to only nominal damages.
Facts:
- Simon Property Group (SPG) formed a subsidiary, clixnmortar.com, during the dot-com boom.
- SPG recruited Shannon Haslund to be the subsidiary's vice president for operations, offering her a job to entice her away from her position at Ernst & Young.
- Haslund demanded and received a written offer for an annual salary of "$175,000 plus 1% equity in clixnmortar.com, structure to be determined."
- Haslund accepted the offer and began working for clixnmortar.com at the end of 1999.
- SPG never issued the 1% equity to Haslund during her employment.
- After 10 months, SPG fired Haslund.
- The subsidiary, clixnmortar.com, never generated significant income or turned a profit and was eventually dissolved.
Procedural Posture:
- Shannon Haslund filed a diversity suit against Simon Property Group (SPG) in the U.S. District Court for the Northern District of Illinois for breach of contract.
- Following a bench trial, the district court judge found in favor of Haslund.
- The district court awarded Haslund $537,634.41 in damages plus prejudgment interest.
- SPG, as the defendant-appellant, appealed the judgment to the U.S. Court of Appeals for the Seventh Circuit.
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Issue:
Does a plaintiff prove damages to a reasonable degree of certainty for a breach of contract to provide equity in a startup when the valuation is based on economically hollow transactions and there is no evidence of a market for the shares?
Opinions:
Majority - Posner, Circuit Judge
No. A plaintiff fails to prove damages to a reasonable degree of certainty when their evidence of value is entirely speculative. Although the contract's equity provision was not unenforceable for indefiniteness, as the court could fill in the missing structural details, Haslund failed to meet her burden of proving she suffered any actual injury from the breach. The valuation of clixnmortar.com at $54 million was based on two transactions that were devoid of economic substance: one was a circular stock swap where no money changed hands, and the other was an exchange of equity for an uncollectible debt. There was no evidence that a market for Haslund's 1% share ever existed or that anyone would have paid a substantial sum for it. When a defendant's breach makes damages hard to quantify, doubts are resolved in the plaintiff's favor, but this rule does not apply to the threshold issue of proving injury itself. Since Haslund failed to prove she lost anything of value, she is entitled only to nominal damages.
Analysis:
This decision underscores the crucial distinction between proving a breach of contract and proving damages. It establishes that even if a defendant deliberately breaches an agreement, the plaintiff cannot recover substantial damages without concrete, non-speculative proof of actual financial loss. The ruling serves as a caution for plaintiffs relying on questionable or economically hollow transactions to establish the value of speculative assets, such as stock in a failed startup. It also highlights the risk for defendants who argue only for zero damages, as it can create a 'final-offer' scenario for the court, though that risk did not materialize for the defendant here due to the plaintiff's complete failure of proof on damages.
