The Good News

Barring an enforceable liquidated damages and/or limited liability contract provision, the rule is that you can recover your lost profits in a breach of contract case in New York.

That's the good news.

The Bad News

But here's the bad news: since demonstrating that you actually lost profits based upon the other side's conduct - and if so, how much - is inherently somewhat speculative, how can you prove such damages under New York law?

How to Prove Entitlement to Lost Profits in a Breach of Contract Case

As you may have guessed, this is not such an easy task.

Here's the general rule:

"In order to recover loss of future profits as damages for breach of contract under New York law, the plaintiff must establish the existence and the amount of lost profits with reasonable certainty, and that the lost profits were within the contemplation of the parties at the time the contract was made. Schonfeld v. Hilliard, 218 F.3d 164, 173 (2d Cir. 2000) (citing Kenford Co., Inc. v. Erie County, 67 N.Y.2d 257, 261 (1986) ("Kenford I")) ...

"To meet this burden, the plaintiff must establish

(1) the existence of the lost profits with reasonable certainty, and

(2) that the alleged loss is capable of proof with reasonable certainty.

Kenford I, 67 N.Y.2d at 261.

"[T]he damages may not be merely speculative, possible or imaginary, but must be reasonably certain and directly traceable to the breach, not remote or the result of other intervening causes." Id; see also 3497 Austin Boulevard Assoc. LLC v. M.K.D. Capital Corp., No. 04 Civ. 8596 (NRB), 2007 WL 1575265, at *2 (S.D.N.Y. May 30, 2007) ("Projections of future profits which are made on the basis of a 'multitude of assumptions' that require 'speculation and conjecture' with few known factors do not provide the requisite certainty for recovery.").

What Happens With a New Business With No Track Record?

But what about in the case of a new, or start-up business? Does the same rule apply to them?

In short, yes, but the following should be borne in mind: since such businesses lack a track record, the courts have stated that "[E]vidence of lost profits from a new business venture receives greater scrutiny because there is no track record upon which to base an estimate." Schonfeld, 218 F.3d at 172.

The Takeaway

Although the law provides for the recovery of lost profits in the breach of contract context under certain conditions, it is another thing to actually establish it under New York law.

Jonathan Cooper
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Non-Compete, Trade Secret and School Negligence Lawyer
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