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Posted: November 12, 2015

Consequential Damages Not Allowed When Not Foreseeable and Contemplated by Parties

On November 10, 2015, the First Department issued a decision in ERC 16W L.P. v. Xanadu Mezz Holdings LLC, 2015 NY Slip Op. 08094, affirming the denial of consequential damages for a claim of breach of contract, explaining:

Plaintiff seeks consequential damages, representing the amount of plaintiff’s lost equity investment in a development project . . . . The court correctly dismissed plaintiff’s claim for consequential damages, because the provisions in the loan agreement providing remedy for a default do not suggest or provide for such a heavy responsibility on the part of defendants, and the evidence fails to show that such damages were foreseeable and contemplated by the parties before or at the time of the agreement’s formation.

Although the remedies set forth in the loan agreement are not the exclusive remedies available to plaintiff in the event of a default, they are evidence that defendants did not assume consciously liability for plaintiff’s entire equity investment in the event of . . . default. With the remedy provisions of the loan agreement in place, providing for, among other things, termination and transfer of the defaulting participant’s interest in the agreement, it was not foreseeable that plaintiff would lose its entire equity investment in the project upon . . . default.

Additionally, given that plaintiff seeks direct claims of only $23 million and that defendants were responsible for only a limited portion of the $1.015 billion loan, plaintiff’s claim for consequential damages equaling its entire equity investment of $1.3 billion is out of proportion to any liability contemplated by the contract.

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

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