Saturday, March 1, 2014

Contract damages (lost profits) not proved with “reasonable certainty.”

Madowitz v. The Woods at Killington Owners’ Association, Inc., 2014 VT 21 (28-Feb-2014)

DOOLEY, J. Amherst Realty appeals a decision of the superior court granting summary judgment to The Woods at Killington Owners’ Association on Amherst Realty’s claim of breach of contract based on the Association’s alleged interference with its development rights at The Woods at Killington. The superior court held that because Amherst Realty was a new business with no history of profits, its losses were too speculative and it could not recover lost profits. On appeal, Amherst Realty urges us to abandon or modify the way we apply the reasonable certainty rule to new businesses and argues that, even if we apply our existing law, it is not a new business and other factors should control.  We affirm.

The rule is clearly established in Vermont that breach-of-contract damages must be proved with “reasonable certainty.” Ferrisburgh Realty Investors v. Schumacher, 2010 VT 6, ¶ 22, 187 Vt. 309, 992 A.2d 1042; see Restatement (Second) of Contracts § 352 (1981) (“Damages are not recoverable for loss beyond an amount that the evidence permits to be established with reasonable certainty.”). Such damages therefore cannot be based on mere “speculation and conjecture.” Pinewood Manor, Inc. v. Vt. Agency of Transp., 164 Vt. 312, 318, 668 A.2d 653, 657 (1995); see also Hedges v. Durrance, 2003 VT 63, ¶ 12, 175 Vt. 588, 834 A.2d 1 (“An injury based on speculation about uncertain future events is no injury at all.”); Bourne v. Lajoie, 149 Vt. 45, 53, 540 A.2d 359, 364 (1987) (rejecting plaintiff’s damages claim for a lost opportunity as “based only on her speculation that she would have been able to sell the property, rather than on evidence of an actual offer from a prospective purchaser which she was unable to pursue”).

Courts rely upon the reasonable certainty standard when a business is seeking damages for lost profits. See Berlin Dev. Corp. v. Vt. Structural Steel Corp., 127 Vt. 367, 372-73, 250 A.2d 189, 193 (1968); see also Restatement (Second) of Contracts § 352 (1981) (“The main impact of the requirement of certainty comes in connection with recovery for lost profits.”). We explained our rule in Berlin Development Corporation: “The general rule is that evidence of expected profits from a new business is too speculative, uncertain, and remote to be considered and does not meet the legal standard of reasonable certainty.” 127 Vt. at 372, 250 A.2d at 193. Consequently, “recovery for lost profits is not generally allowed for injury to a new business with no history of profits.” Id.

We need not address Amherst Realty’s arguments regarding the new business rule because Amherst Realty faces a more fundamental barrier to recovery of business profits, which is that any such profits are entirely speculative.

The superior court ruled that the Association could not be liable for opposing the extension of the Act 250 permit and Amherst Realty has not contested this ruling on appeal.  Thus the only damages at issue relate to construction that would have been completed by January 1, 2000 under the existing permit. One of the facts admitted by Amherst Realty was that “Plaintiff’s calculation of lost profits . . . do not include any units constructed before January 1, 2000.”  Based on the record, it is entirely speculative that Amherst Realty would have completed, or even started, any construction before the Act 250 permit expired on January 1, 2000.