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By: Catherine Scott
It is a long-settled principle of contract law that an individual who seeks to recover damages under a broken contract will only be allowed to recover a figure sufficient to put that person in the place he or she would have been had the contract been performed. Courts have routinely referred to these types of damages as “benefit of the bargain” or “expectancy” damages. These damages often consist of a party’s out-of-pocket damages, as well as any consequential damages flowing from the breach of contract. However, what happens when the expectancy interest under the contract includes items that cannot be easily quantified, such as loss of reputation, future pay, or, in this instance, the cost of re-building a laboratory for medical research?
In Hlatky v. Steward Health Care System, LLC, the Supreme Judicial Court ruled that a medical researcher whose hospital-employer had pulled its support of her laboratory, ultimately resulting in its demise, could recover $10 million in expectancy damages to “re-build” the laboratory based on the hospital’s breach of contract and breach of the covenant of good faith and fair dealing. The Court allowed the researcher to do so despite her not having provided any expert testimony as to the value of her laboratory at the time of its demise. Moreover, the researcher could not demonstrate any ownership interest in the laboratory as her laboratory had been fully funded by federal research grants. This fact did not stop the Court from holding the researcher had an expectancy interest in the full value of the laboratory given that it represented the culmination of her life’s work. This ruling was in spite of defendant’s and amicus curiae argument that the researcher could only recover the value of the “expected use” of the laboratory — i.e., her own lost future earnings based on the researcher’s use of the laboratory — but not the laboratory’s full value itself. It is worth noting the researcher established only $200,000 in out-of-pocket damages from the loss of her laboratory and did not pursue damages for loss of future earnings, reputational harm, or emotional distress stemming from the breach of contract.
Though the Court limited its ruling to these specific circumstances, the Court’s decision has longstanding implications for what would constitute benefit of the bargain damages in other breach of contract actions. The ruling demonstrates that plaintiffs can and will be successful on creative theories of damages in these types of actions. Plaintiffs can recover a significant amount of damages without expert testimony as to value or loss of profit so long as their lay testimony has some basis or foundation in the record. Defense counsel should be vigilant about attacking such theories of damages prior to, during, and after trial, and be careful about preserving significant damages issues for appeal.
If you have any questions about this ruling or other breach of contract matters, please feel free to contact Catherine Scott at [email protected] or any other member of FMG’s Commercial Litigation group.