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Lama Holding Co. v. Smith Barney Inc.

Court of Appeals of New York

May 1, 1996, Argued ; June 13, 1996, Decided

No. 144

Case Summary

Procedural Posture

Appellant shareholder appealed a decision by the Appellate Division of the Supreme Court in the First Judicial Department (New York), which affirmed an order to dismiss in its entirety, the shareholder's state claims against respondent corporation.

Overview

The corporation informed the shareholder of a merger acquisition without revealing the name of the merger partner, the fact that the merger partner would withdraw if 5 percent of the common stock holders did not approve, or the tax consequences of the merger. As a result of the merger, the shareholder profited approximately $ 90 million and was subject to tax liability of over $ 33 million. The shareholder contended that the corporation induced its vote for the merger and claimed as damages, the amount of taxes it was required to pay. The court held that (1) the measure of damages was limited to actual pecuniary loss; (2) loss of a bargain was undeterminable and speculative; (3) consequential damages could not serve as the basis of actual pecuniary loss; (3) the corporation did not owe a fiduciary duty to a shareholder of another entity, which was itself a shareholder of the corporation; (4) a shareholder could not sue directly for injury to a corporation; (5) the corporation did not intentionally procure a third party to breach its contract with the shareholder; and (6) speculative damages could not serve as the basis of a breach of contract claim.

Outcome

The court affirmed the order.

LexisNexis® Headnotes

 

 

Contracts Law > ... > Affirmative Defenses > Fraud & Misrepresentation > General Overview

HN1  Affirmative Defenses, Fraud & Misrepresentation

In an action to recover damages for fraud, the plaintiff must prove a misrepresentation or a material omission of fact which was false and known to be false by defendant, made for the purpose of inducing the other party to rely upon it, justifiable reliance of the other party on the misrepresentation or material omission, and injury.

 

Contracts Law > ... > Affirmative Defenses > Fraud & Misrepresentation > General Overview

Contracts Law > ... > Types of Damages > Compensatory Damages > General Overview

HN2  Affirmative Defenses, Fraud & Misrepresentation

The true measure of damage is indemnity for the actual pecuniary loss sustained as the direct result of the wrong, or what is known as the "out-of-pocket" rule. Under this rule, the loss is computed by ascertaining the difference between the value of the bargain which a plaintiff was induced by fraud to make and the amount or value of the consideration exacted as the price of the bargain. Damages are to be calculated to compensate plaintiffs for what they lost because of the fraud, not to compensate them for what they might have gained. Under the out-of-pocket rule, there can be no recovery of profits which would have been realized in the absence of fraud.

 

Contracts Law > ... > Affirmative Defenses > Fraud & Misrepresentation > General Overview

Contracts Law > ... > Types of Damages > Compensatory Damages > General Overview

HN3  Affirmative Defenses, Fraud & Misrepresentation

Even if a plaintiff sufficiently alleges a claim of fraud, a plaintiff's recovery is limited to his losses.

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88 N.Y.2d 413 ; 668 N.E.2d 1370 ; 646 N.Y.S.2d 76 ; 1996 N.Y. LEXIS 1187 

Lama Holding Company et al., Appellants, v. Smith Barney Inc. et al., Respondents.

Prior History:  [1]  Appeal, by permission of the Court of Appeals, from an order of the Appellate Division of the Supreme Court in the First Judicial Department, entered May 25, 1995, which modified, on the law, and, as modified, affirmed an order of the Supreme Court (Alice Schlesinger, J.), entered in New York County, granting, in part, a motion by defendants to dismiss the complaint. The modification consisted of granting the motion to dismiss the complaint in its entirety.

Lama Holding Co. v Smith Barney, 215 AD2d 314, affirmed.

Disposition: Order affirmed, with costs.