Lost Profits Awarded After Improper Termination

Inspectronic Corp. v. Gottlieb Skanska, Inc. (2nd Dept. January 2016) involved a contract wherein the Plaintiff was to perform seven specific items in its “scope of work” but only completed three out of the seven before the defendant terminated the contract and entered into another contract with a different company to complete the remaining items.  The lower court found the defendant to have wrongfully terminated the contract with the plaintiff, and awarded the plaintiff a sum representing damages for lost profits plus retainage.  At issue was the amount of damages awarded for lost profits which were based on the unfinished items for which a lump sum contract price would have been paid and those which were incurred in connection with change order work, which would have been paid on a “time and material basis.”

The rule of foreseeability governs the amount of lost profits available to a party, which holds that to be recoverable, the “lost profits” must have been “within the contemplation of the parties” at the time they entered into the contract and “are capable of measurement with reasonable certainty.”  The Court explained that to satisfy the “reasonable certainty” portion, “absolute certainty” is not required, but rather that the damages be based upon “known reliable factors without undue speculation.”

Additionally, the measurement for lost profits in connection with the remaining contracted work items of a “fixed-price construction contract” where the party’s performance is prevented by the other party is “the contract price, less payments made and less the cost of completion.”

Here, the evidence established that the parties anticipated change orders when they entered into the contract and therefore, as the parties contemplated the loss for such profits they were a “foreseeable” risk.  As such, the Court found the amount of future lost profits to be undisputed, and were to be calculated based on the amount paid to the plaintiff’s successor for change order work, which required no speculation.

However, although the plaintiff submitted projected lost profits and costs to establish the entitlement to damages in connection with the remaining contracted items, the Court found that the lower court erred in failing to account for the cost of materials that the plaintiff would have incurred had the plaintiff been permitted to complete the work, which needed to be subtracted from the award for lost profits.

 

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