A decision last year from the Commercial Division of the New York State Supreme Court, Erie County, provides two helpful reminders to commercial litigants. First, at least in New York, the plaintiff’s damages must have been actually and proximately caused by the defendant’s allegedly wrongful conduct. Second, in a breach of contract case, alleged damages that are speculative and not reasonably foreseeable may not be recovered.
In Weaver v. Hatch Acres Corp., Sup. Ct., Erie County, Sept. 8, 2008, Index No. 007642/2008, a developer entered into a contract to purchase vacant land where he planned to construct a residential development. The purchase contract was contingent on the developer obtaining permits and other governmental approvals that would allow him to construct fifty homes on the land. If approval to build at least fifty homes could not be obtained, he could cancel the purchase contract or reduce the purchase price proportionally. In connection with the purchase, the developer engaged an environmental engineering firm to perform a wetlands delineation for the vacant property. Based on the wetlands delineation, the developer concluded that he could build fifty homes on the land and proceeded to close on the purchase contract before obtaining a wetlands permit from the federal government or the other required approvals from the municipality. The United States Army Corps of Engineers subsequently determined that additional wetlands were present on the land, leaving only enough unrestricted space to build thirty-six homes. The developer then sued the engineering firm to recover his alleged lost profits on the fourteen homes he was prevented from building, arguing that the engineering firm had breached its contract by preparing an inaccurate wetlands delineation.
The engineering firm, represented by Phillips Lytle attorneys, moved for summary judgment seeking dismissal of the developer’s claims. The Court agreed, and dismissed the complaint, holding first that the allegedly inaccurate wetlands delineation was not the cause of developer’s inability to develop more than thirty-six homes. Rather, it was the presence of wetlands, which were not created by defendant, that restricted the amount of development. The Court found that since the developer’s alleged lost profits were caused solely as the result of the presence of the wetlands and not anything that the defendant did or failed to do, there was no “but-for” causation between the alleged wrongful conduct and the alleged lost profits.
The Court also found that the alleged lost profits were speculative and not reasonably certain. Although the developer contracted to purchase the land in 2003, eight years later the developer still had not sold even the first of the thirty-six homes that were unaffected by the wetlands and that were approved for development. In opposing the summary judgment motion, the developer argued that he had not proceeded with the development because of the sudden downturn in the economic conditions of the housing industry. According to the Court, though, the developer’s acknowledgement that other independent causes, unrelated to the wetlands delineation, had contributed to his lost profits was fatal to his claim. Because the alleged lost profits were not “reasonably certain,” but rather were “merely speculative, possible, or imaginary,” they were not recoverable under New York law.
This matter was handled by Phillips Lytle attorneys Kevin M. Hogan, Partner in the Environmental and Business & Commercial Litigation practice areas, and Sean C. McPhee, an Associate in the Business & Commercial Litigation practice. Questions pertaining to this article can be directed to Kevin at (716) 847-8331 or firstname.lastname@example.org.