How to Prove Lost Profits in a New York Breach of Contract Case June 20, 2010

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.

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? 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, ² 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.”).

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  “evidence 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.

Jonathan Cooper is a New York Business Litigation and New York Commercial Litigation Lawyer with a focus on New York breach of contract and New York business fraud claims before the Nassau, Queens, Brooklyn, Bronx, Westchester and Suffolk County courts of New York State. For more information, feel free to contact his Long Island office at 516-791-5700.

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