Biotronik A.G. v Conor Medsystems Ireland, Ltd., 95 AD3d 724 (March 27, 2014)
Decision: 2014_02101-Biotronik-v-Conor
In a four to three decision, the court held that lost profits from an exclusive distribution agreement were general damages because they were “the direct and probable result of a breach of the parties’ agreement and thus constitute general damages.”
“The agreement included a damages limitation provision restricting the parties to general damages:
‘NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR ANY INDIRECT, SPECIAL, CONSEQUENTIAL, INCIDENTAL OR PUNITIVE DAMAGE WITH RESPECT TO ANY CLAIM ARISING OUT OF THIS AGREEMENT (INCLUDING WITHOUT LIMITATION ITS PERFORMANCE OR BREACH OF THIS AGREEMENT) FOR ANY REASON.’
The agreement was to be governed by New York law. Its term was through December 31, 2007, and it provided for an automatic one year renewal, absent a timely termination notice from either party.”
“The limitations provision does not specifically preclude recovery for lost profits, nor does it explicitly define lost profits as consequential damages. We thus turn to our precedent for guiding principles to assist in determining whether, under this agreement, plaintiff’s lost profits are general damages and therefore recoverable.”
“Lost profits may be either general or consequential damages, depending on whether the non-breaching party bargained for such profits and they are “the direct and immediate fruits of the contract” (see Tractebel, 487 F3d at 109 n 20, citing Masterton & Smith v Mayor of Brooklyn, 7 Hill 61, 68-69 [1845]). Otherwise, where the damages reflect a “loss of profits on collateral business arrangements,” they are only recoverable when “(1) it is demonstrated with certainty that the damages have been caused by the breach, (2) the extent of the loss is capable of proof with reasonable certainty, and (3) it is established that the damages were fairly within the contemplation of the parties” (Tractebel, 487 F3d at 109, citing Kenford Co. v County of Erie, 67 NY2d 257, 261 [1986]). ”
“Although the lost profits sought by plaintiff are not specifically identified in the agreement, it cannot be said that defendant did not agree to pay them under the contract, as these profits flow directly from the pricing formula. The purpose of the agreement was to resell.”
The dissent summed up their position:
“But Biotronik has devised, and the majority has accepted, a way to circumvent the natural meaning of the limitation-of-liability provision, combining a novel reading of the provisions governing how much Biotronik agreed to pay Conor to purchase the stents with certain aspects of Orester, a 94-year-old decision whose central holding was long ago absorbed into the Uniform Commercial Code in section 2-715 (a) (2), dealing with consequential (not general) damages. Creativity on this scale is no boon in the commercial world, ‘where reliance, definiteness and predictability are such important goals of the law itself, designed so that parties may intelligently negotiate and order their rights and duties’ (Matter of Southeast Banking Corp., 93 NY2d 178, 184 [1999]).”