DAMAGES FOR BREACH OF AGREEMENT TO AGREE

CRESCO LABS NY, LLC v. FIORELLO PHARMS., INC., 2023 NY Slip Op 3305 - NY: Appellate Div., 1st Dept. 2023:

"Plaintiffs were limited to out-of-pocket damages for any breach of the parties' letter of intent (LOI), which was merely an agreement to agree (Goodstein Constr. Corp. v City of New York, 80 NY2d 366, 371-373 [1992]). Goodstein applies where an agreement to agree includes exclusivity and confidentiality provisions, and the defendant is accused of breaching them (see also Garda USA, Inc. v Sun Capital Partners, Inc., 194 AD3d 545 [1st Dept 2021]). In Garda, this Court held that recovery for breach of a preliminary agreement's confidentiality provision could not be based on "the theory that it would have acquired" the company at issue, as the "defendant[] w[as] not bound to go forward with the transaction" (id. at 547). This principle applies here.

Contrary to plaintiffs' arguments, an award of cover damages was not foreseeable at the time of contracting. Plaintiffs maintain that the LOI's text establishes that the parties contemplated cover damages for a breach of the exclusivity provision because (1) the exclusivity provision was not terminable at will, (2) the parties' exclusivity obligations were mutual, and (3) the LOI provided that it was "intended to be binding." While it is undisputed that the exclusivity provision was binding for 30 days, it does not follow that the parties reasonably contemplated cover damages as the remedy for breaching it. In fact, the text of the LOI and the surrounding circumstances support a finding that the parties did not contemplate cover damages at the time of contracting. That the parties entered only a preliminary agreement with no obligation to close a transaction and no specific damage provision for breach conclusively shows that defendant did not wish to assume the risk of covering whatever replacement transaction plaintiffs might pursue (Goodstein, 80 NY2d at 371-373)."