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Current Developments in the Commercial Divisions of the
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Posted: June 29, 2014

Breach of Contract Claim Survives Because Nominal Damages Satisfy Damages Element of Claim

On June 19, 2014, Justice Schweitzer of the New York County Commercial Division issued a decision in 37 East 50th St. Corp. v. Restaurant Group Management Services, LLC, 2014 NY Slip Op. 31595(U), holding that nominal damages are sufficient to support a claim for breach of contract.

In 37 East 50th St. Corp., the parties brought claims and counterclaims regarding the defendants’ management of a restaurant.  Among the issues decided by the court was whether the defendants’ breach of contract counterclaim should be dismissed because the defendants’ claims for loss of future profits and reputational harm did not satisfy the damages element of a breach of contract claim. The court agreed that such damages were not recoverable, but nonetheless did not dismiss the claim, explaining:

Loss of future profits as damages for breach of contract under New York law requires that the following elements be shown: (1) it must be demonstrated with certainty that such damages have been caused by the breach; (2) the alleged loss must be capable of proof with reasonable certainty. In other words, the damages may not be merely speculative, possible or imaginary, but must be reasonably certain and directly traceable to the breach, not remote or a result of other intervening causes”; (3) there must be a showing that the particular damages were fairly within the contemplation of the parties to the contract when it was made. Any reputational harm that might result from [the plaintiff’s] termination of its agreements with [the defendants] (assuming they were in breach) is purely speculative, considering that [the defendants] rejected their notice of termination and continues to manage the restaurant. [The defendants have] not alleged that the harm was fairly within the contemplation of the parties at the time they entered into the Agremeents.

[The defendants are] not entitled to damages for reputational harm on the basis of [the plaintiff’s] commencement of this lawsuit. Commencement of a lawsuit is not a valid basis for reputational harm giving rise to damages, unless it is alleged that the lawsuit was initiated maliciously and/or constitutes abuse of process. [The defendants’] counterclaim does not allege that [the plaintiff] has abused process by bringing suit against them. Therefore, they are not entitled to damages on the basis of the fact of the lawsuit itself.

[The defendants are] entitled to bring a breach of contract claim in pursuit of nominal damages. Nominal damages are always available in breach of contract actions. Nominal damages are a way of recognizing the fact that harm is caused by the fact of one party’s breaking its contractual promise to another, apart from any measurable form of damages that might be alleged in a traditional breach of contract claim for monetary damages. A party’s rights in contract arise from the parties’ promises and exist independent of any breach. Nominal damages allow vindication of those rights. Therefore, a claimant need not allege damage in order to be entitled to nominal damages for breach of contract. . . . . Nominal damages satisfy the damages element of a breach of contract claim under New York law.

(Internal quotations and citations omitted) (emphasis added).

This decision is hard to reconcile with the New York County Commercial Division decision in Saxon Technologies, LLC v. Wesley Clover Solutions-North America, Inc., 2014 NY Slip Op. 30002(U), which dismissed a breach of contract claim for failure adequately to plead damages.  It is a rare situation where a plaintiff is willing to pay to litigate over nominal damages, so as a practical matter, not having a claim and having a claim for only nominal damages usually amounts to the same thing.

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