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RMLS METALS, INC. v. IBM

January 23, 1995

RMLS METALS, INC., Plaintiff, against INTERNATIONAL BUSINESS MACHINES CORPORATION, Defendant.


The opinion of the court was delivered by: DENISE COTE

 At an initial pretrial conference held on November 9, 1994, the parties indicated that the principal roadblock to successful settlement discussions was their disagreement regarding the plaintiff's ability to recover lost profits should there be a finding that there was a binding contract between the parties. At the conference it was agreed that the parties would submit memoranda of law addressing the issue of whether, assuming arguendo that the letter between the parties of February 15, 1993 (attached to plaintiff's memorandum of law as Exhibit C) created an enforceable contract, lost profits would be available. Both parties submitted briefs with attached exhibits on December 16, 1994. Upon the record at this preliminary stage of the litigation, this Court finds that lost profits cannot be calculated with reasonable certainty, were not within the contemplation of the parties at the time the contract was made, and are therefore not available as a matter of law.

 BACKGROUND

 For purposes of this Opinion, it is assumed that the letter of February 15, 1993, from defendant International Business Machines Corporation ("IBM") to plaintiff RMLS Metals, Inc. ("RMLS"), created a binding contract by accepting the offer made by plaintiff's bid package dated December 10, 1992. In the letter, IBM accepts RMLS's proposal for recycling IBM's computer scrap by recovering precious metals. These metals were to be either returned to IBM or sold by RMLS. It is also assumed that IBM never delivered any scrap to RMLS for processing, and that if it had done so, RMLS would have processed such material at a newly constructed plant.

 AVAILABILITY OF LOST PROFITS AS MEASURE OF DAMAGES

 Under New York law, *fn1" the recovery of lost profits for breach of contract is subject to the following "stringent" requirements:

 
First, it must be demonstrated with certainty that such damages have been caused by the breach and, second, the alleged loss must be capable of proof with reasonable certainty. In other words, the damages may not be merely speculative, possible, or imaginary, but must be reasonably certain and directly traceable to the breach, not remote or the result of other intervening causes. . .. In addition, 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.

 Travellers International, A.G. v. Trans World Airlines, 1994 WL 697587, *8 (2d Cir. Dec. 8, 1994) (emphasis supplied), quoting Kenford Co. v. County of Erie, 67 N.Y. 2d 257, 261, 502 N.Y.S.2d 131, 493 N.E.2d 234 (1986) (per curiam) (Kenford I); Trademark Research Corp. v. Maxwell Online, Inc., 995 F.2d 326, 332-34 (2d Cir. 1993).

 In deciding whether lost profits are capable of proof with reasonable certainty, "courts distinguish between established businesses and new or 'fledgling' enterprises. . . ." Id at *10, citing Merlite Industries, Inc. v. Valassis Inserts, Inc., 12 F.3d 373, 376 (2d Cir. 1993); Trademark Research Corp., 995 F.2d at 332-334.

 
If it is a new business seeking to recover for loss of future profits, a stricter standard is imposed 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.

 Trademark Research Corp., 995 F.2d at 332 (emphasis supplied), citing Kenford I, 67 N.Y.2d at 261 (issue of lost profits did not go to the jury as seven years of lost profits could not be extrapolated from four months of sales).

 It is impossible to calculate lost profits with the requisite amount of certainty for the business venture between IBM and RMLS. The venture was in essence a new business for plaintiff, who converted a plant to be used for this contract. RMLS had no track record in the recovery of precious metals from IBM products or the operation of the newly converted plant.

 Nor can RMLS derive the requisite degree of certainty from the contract's terms. The bid package, submitted on December 10, 1992 (and attached to plaintiff's memorandum of law as Exhibit B), contains different purchase prices for different precious metals per troy ounce, "metal return charges" per troy ounce, "minimum lot charges" for three alternative types of metal, transportation costs per pound, and "treatment charges" per pound. These are the only costs or prices mentioned in the bid, and they are all dependent upon the volume of each type of metal recycled. There is no indication of minimum payments owed by IBM to RMLS. There is also no indication of a guaranteed, or even expected, volume of metals (whether in aggregate or per type of precious metal) to be recycled by RMLS, or of the volume of scrap to be delivered by IBM to RMLS. RMLS contends that the volume term was fixed in conversations between the parties prior to February 13, 1995, but does not indicate what that term was. Nor is there any indication that RMLS was to be the exclusive handler of IBM's scrap. RMLS asserts that it was to be the "principal" outside recycler for IBM, without further explanation. IBM contends that RMLS knew that IBM had at ...


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