Law School Case Brief
World of Boxing LLC v. King - 107 F. Supp. 3d 265 (S.D.N.Y. 2015)
New York courts have long distinguished between two different forms of redress in breach of contract suits: "expectation damages" and "reliance damages." Expectation damages provide the injured party with the benefit she would have enjoyed had no breach occurred — i.e., they aim to fulfill the injured party's expectations from the contract. Reliance damages, by contrast, seek to restore the injured party to the position she was in before the contract was formed. They allow for recovery of "expenditures [the injured party] made in reliance on defendant's representations and that he otherwise would not have made." Under New York law, when expectation damages defy precise calculation, reliance damages are the appropriate remedy.
In a previous ruling, it was determined that Don King, doing business as Don King Productions, breached his agreement with Vladimir Hrunov and Andrey Ryabinskiy, doing business as World of Boxing (WOB), when King failed to cause Guillermo Jones to participate in a bout against Denis Lebedev. The Court was asked to determine the amount that King owed to WOB. Because WOB’s lost profits, i.e., its expectation damages, cannot be reasonably quantified, WOB sought to recover the costs it incurred in anticipation of the bout. The costs were divided into two categories: (i) per the terms of the parties’ agreement, WOB paid $800,000 into an escrow account, of which $250,000 was immediately payable to King; and (ii) WOB expended approximately $1 million in preparation for the bout. Of this, King conceded that $536,000 – which represented the portion of the escrow amount not immediately payable to King, minus legal fees, plus interest, was due to WOB per the terms of the parties’ escrow agreement.
As to the remaining $250,000 from the escrow amount and the $1 million of preparatory costs, King maintained that WOB should not be able to recover the $250,000 that was immediately payable to him upon the execution of the Agreement because it was earmarked as a non-refundable payment to King. More importantly, King argued that although WOB was correct that New York law provided for recovery of reasonable, foreseeable, reliance damages, those damages must be offset by any loss that the injured party would have suffered had the contract been performed. In this light, King argued that WOB would have incurred significant losses even if the bout had gone forward; therefore, its reliance damages should be capped at the amount of revenue that WOB could have reasonably have expected from the bout, which, if measured in terms of the ticket sales that WOB was forced to refund, would be equivalent to $100,000.
Should the reliance damages be offset by any loss that WOB, the injured party, would have suffered had the contract been performed?
The Court noted that reliance damages sought to restore the injured party to the position she was in before the contract was formed. Reliance damages allowed for recovery of “expenditures made in reliance on defendant’s representations and that he otherwise would not have made.” According to the Court, New York law stipulated that when expectation damages defied precise calculation, reliance damages were the appropriate remedy. The Court averred that courts must assess the costs that a plaintiff has incurred from expenditures made in preparation for performance or in performance, less any loss that the injured party would have suffered had the contract been performed. The purpose of offsetting reliance damages against anticipated losses was to ensure that contract damages do no more than make an injured party whole, i.e., to ensure that damages would not put the plaintiff in a better position than he would have occupied had the contract been fully performed. The Court noted that WOB retained approximately $75,000 in revenue from ticket sales, notwithstanding the breach. Thus, the Court held that the aforementioned amount should be deducted from the final judgment.
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