Val Tech Holdings, Inc. v. Wilson Manifolds, Inc.

This appeal addresses damages recoverable under a cross claim for breach of contract. The plaintiff, Val Tech Holdings, contracted with the defendant, Wilson Manifolds, to fabricate plastic injection molds for the production of specialty intake manifold parts to be sold by the defendant to retail customers. When plaintiff commenced an action seeking damages for breach of contract in the Supreme Court of Monroe County, the defendant responded with counterclaims of breach of contract seeking compensatory damages for loss of profits as well as punitive damages. Plaintiff then moved for partial summary judgment dismissing the defendant’s counterclaims. and defendant made a cross motion for leave to serve a second amended answer containing counterclaims breach of implied covenant of good faith and fair deal as well as fraud. In response, the court issued an order denying the plaintiff’s motion and granting the defendant’s cross motion.

Here, the court held that consequential damages for lost profits are recoverable if, at the time of contracting, the loss of profits that would be incurred from a breach are foreseeable and probable. The court rejected plaintiff’s contention that lost profits must be included as a recovery in the contract at time of creation and instead used what it called the “common sense rule” to determine what the parties would have concluded had they considered the subject of damages. Using that rule the court found that plaintiff failed to meet its initial burden of establishing as a matter of law that lost profits were not within the contemplation of the parties at the time the contract was made. The key uncontested fact that the court relied upon was plaintiff’s knowledge of defendant’s intent to use the molds for immediate production and resale of specialty automotive parts.

However, the court did agree with plaintiff that the defendant’s demand for punitive damages was unsupported by allegations and that the lower court erred in denying that part of plaintiff’s motion to strike. The court found that nothing in the allegations satisfied the requirement of egregious conduct directed at the public in general. Furthermore, the court found that defendant’s proposed counterclaim for breach of the implied covenant of good faith and fair dealings was duplicative as it could not exist by itself absent the contract. Therefore, the court held that that counterclaim should have been denied on the ground that it was palpably insufficient on its face. Importantly, the court held that the second proposed counterclaim for fraud properly alleges wrongful conduct and injurious consequences independent of those underlying the breach of contract claim and was therefore properly allowed. Therefore, the court unanimously modified the lower court’s order so as to grant the plaintiff’s motion to strike defendant’s demand for punitive damages but to deny the part of defendant’s cross motion seeking leave to serve a second amended answer adding a counterclaim for breach of the implied covenant of good faith and fair dealing. As modified the lower courts order was affirmed without costs.

990 N.Y.S.2d 379 (4th Dep’t. 2014)

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