market. Happy Dack, 602 F. Supp. at 994. Specific brands and styles of clothing, such as the Lakeland goods at issue here, are not so fungible. See Texpor Traders, Inc. v. Trust Co. Bank, 720 F. Supp. 1100, 1114 (S.D.N.Y. 1989). In Hilord Chem. Corp., the Court did not actually decide that the plaintiff had unreasonably failed to cover; it held only that the trial court should have instructed the jury on the issue of cover in light of testimony that specific sources of substitute goods were available to the plaintiff. Hilord Chem. Corp., 875 F.2d at 38.
Accordingly, the defendant's motion for summary judgment is also denied insofar as it seeks to bar recovery for consequential damages.
C. Limitation on recovery of lost profits
In the alternative, Haddad asserts that any lost profits awarded to Jewell-Rung should be limited to those derived from confirmed orders placed by Jewell-Rung's customers at the time of the alleged breach.
Under New York law, recovery of lost profits has three prerequisites. First, the party seeking lost profits must demonstrate "with certainty that such damages have been caused by the breach and, second, the alleged loss must be capable of proof with reasonable certainty." Kenford Co. v. County of Erie, 67 N.Y.2d 257, 502 N.Y.S.2d 131, 132, 493 N.E.2d 234 (1986). Third, "there must be a showing that the particular damages were fairly within the contemplation of the parties to the contract at the time it was made." Id.; accord Care Travel Co. v. Pan American World Airways, Inc., 944 F.2d 983, 994 (2d Cir. 1991).
Before any evidence of lost profits is presented in this matter, Haddad asks the Court to rule as a matter of law that lost profits, with the exception of anticipated payments for garments already ordered by retailers at the time of breach, are incapable of proof with reasonable certainty. Haddad makes two arguments in support of this position.
First, Haddad cites Texpor Traders, 720 F. Supp. at 1114, Wullschleger & Co. v. Jenny Fashions, Inc., 618 F. Supp. 373, 378 (S.D.N.Y. 1985), and Harbor Hill Lithographing Corp. v. Dittler Bros., Inc., 76 Misc. 2d 145, 348 N.Y.S.2d 920, 924 (Sup. Ct. Nassau Cty. 1973), for the proposition that in the case of a wholesaler, lost profits are restricted to those pertaining to confirmed orders of resale. None of these cases comes close to establishing such a per se rule. Each case merely limits recovery of lost profits after the plaintiff has presented evidence and failed to demonstrate a reasonable basis for calculating lost profits other than those derived from confirmed orders that were in place at the time of breach.
Second, Haddad maintains that lost profits are rarely appropriate where the injured party is a new business because such damages are by nature highly speculative. When a "new business" seeks to recover lost profits, "a stricter standard" of proof is required "for the obvious reason that there does not exist a reasonable basis of experience upon which to estimate lost profits with the requisite degree of reasonable certainty." Kenford Co., 502 N.Y.S.2d at 132; accord Care Travel Co., 944 F.2d at 993. This heightened standard of proof for new businesses indicates that new ventures will have difficulty demonstrating lost profits; it does not mean that new businesses should be denied an opportunity to present their evidence of such damages at trial.
Whether Jewell-Rung is in fact a "new business" within the meaning of Kenford Co. is itself unclear. It is new to the business of selling Lakeland products in Canada, but its experience as a wholesaler of men's clothing in Canada is evidence of its viability as an enterprise and could, for example, yield evidence as to previous patterns of profit on resale of similar lines of clothing.
Accordingly, Defendant's request to limit recovery of lost profits to confirmed orders of resale is denied at this time.
III. DISPUTE REGARDING DISCOVERY
During June of 1992, a dispute arose between the parties regarding defense counsel's representation of James Baum, a non-party witness and former vice-president of Defendant's Lakeland division. On June 5, 1992, Plaintiff asked this Court to prohibit defense counsel from continuing to represent Mr. Baum at his deposition and to prevent defense counsel from advising Mr. Baum to invoke the attorney-client privilege in response to the plaintiff's questions regarding his discussions with defense counsel. On June 12, 1992, Defendant moved by order to show cause for an order permitting defense counsel to represent Mr. Baum at his deposition and prohibiting the plaintiff from obtaining any testimony at Mr. Baum's deposition that would divulge communications between the deponent and defense counsel that are privileged or attorney work product.
Continuing acrimony between the parties prompted this Court to order them to appear before it on June 16, 1992, to complete Mr. Baum's deposition. At his deposition, Mr. Baum testified that defense counsel had offered to represent him at the deposition free of charge. Mr. Baum explicitly stated that he did not request representation by counsel and did not feel that he needed it.
The completion of the Baum deposition rendered moot the parties' applications for rulings as to whether defense counsel may represent Mr. Baum and whether communications between Mr. Baum and defense counsel are protected from disclosure.
A note of caution is nevertheless in order. Defense counsel has informed the Court that its firm practice is to offer representation to all former employees of its corporate clients free of charge. Dual representation of a party corporation and a nonparty former employee of that corporation presents a potential for abuse in that it provides a means for the corporate party to exert influence and control over a nonparty witness. It thereby creates the potential for ethical problems that threaten the integrity of the judicial system. It also leads to the sort of disputes that arose here, and even if no ethical violations occur, creates an appearance of impropriety to laypeople.
In the event that abuses or ethical breaches are shown to have resulted from such a dual representation arrangement, courts may impose sanctions upon the abusing party. See In re Coordinated Pretrial Proceedings in Petroleum Prods. Antitrust Litig., 658 F.2d 1355, 1361 (9th Cir. 1981), cert. denied, 455 U.S. 990 (1982). Although no specific abuses or ethical breaches have been demonstrated here, counsel is advised to proceed with care when it offers representation to nonparty witnesses which is presumably to be paid for by its party client.
For the reasons set forth above, Plaintiff's motion to strike is denied, Defendant's motion to strike is granted in part and denied in part, and Defendant's motion for summary judgment is denied.
IT IS SO ORDERED.
Dated: New York, New York
February 19, 1993
Robert P. Patterson, Jr.