Damages Award Thrown Out Because of Failure to Provide Competent, Non-Hearsay Evidence of Damages

On February 8, 2018, the First Department issued a decision in 345 E. 69th St. Owners Corp. v, Platinum First Cleaners, Inc., 2018 NY Slip Op. 00892, vacating a damages award because it was not based on competent, non-hearsay evidence, explaining:

The trial court awarded damages consisting of $196,811.88 representing lost rent over the remainder of the sublease, $48,922.68 in real estate escalation charges, $5,694.18 for the cost of a new sign, $12,300 representing the costs of preparing the demised premises for rerental, and $21,204 representing the proportional real estate broker's fee for obtaining a new tenant. The court also awarded plaintiff $15,000, representing the reasonable attorneys fees attributable to the prosecution of this action. We modify the damages to reduce the amount for lost rent to $124,811.88 and to vacate the award for real estate escalation charges. The award of damages is in all other respects affirmed. The only witnesses who testified at trial were Larry Kopp and Rahol Sharma, respectively the president and treasurer of plaintiff's board of directors. Huang correctly argues that neither witness established that the records on which they relied to prove damages were plaintiff's business records. Nonetheless, the court was entitled to credit the testimony each witness gave concerning matters about which they had personal knowledge. Mr. Kopp testified that he was personally involved in arranging for new signage at the demised premises. He also testified that after the subtenant vacated the premises he was personally involved in hiring a contractor to make the space suitable for re-renting and a real estate broker to find a new tenant. The sublease requires the subtenant to pay these expenses, and the trial court properly found Mr. Kopp's testimony on the amounts plaintiff actually paid for these items to be credible.

Although Mr. Sharma is plaintiff's treasurer, he did not establish any personal knowledge regarding the matters about which he testified. The monies Mr. Sharma testified were owed in lost rent were based upon an exhibit that was obviously prepared for litigation. The trial court improperly permitted the schedule to come into evidence and then improperly let Mr. Sharma testify to its contents. The court also incorrectly concluded that just because the amounts claimed owed were set forth in the plaintiff's verified bill of particulars, Mr. Sharma could competently testify to those amounts. The function of a bill of particulars is to amplify a pleading, limit proof and prevent surprise at trial. A bill of particulars cannot be used to relieve a party of its evidentiary burden to prove the facts asserted therein.

. . . Although plaintiff claims that Dr. Wine did not start paying rent until March 2013 (the last date on which Dr. Wine could start paying rent under the lease), the applicable provision has a condition triggering earlier rent payments. No competent proof was adduced about when the condition precedent to the payment of rent was fulfilled or when Dr. Wine actually started paying rent. No rent ledgers or other probative documents were produced, nor could either witness competently testify about this issue. Mr. Sharma's testimony concerning when Dr. Wine actually started paying rent was based upon what Dr. Wine had told him. Mr. Sharma's testimony was inadmissible hearsay and insufficient to prove the underlying fact. Mr. Kopp did not provide any basis for his knowledge. The witnesses' voluntary board positions with plaintiff corporation, without any information about their duties and/or responsibilities, did not provide the requisite basis for knowledge.

. . .

Plaintiff also failed to prove that it was entitled to additional rent based upon the real estate escalation provision in the sublease. Although the sublease entitles plaintiff to collect "additional rent" for real estate escalations, the calculation is required to be based upon a percentage of real estate taxes imposed on plaintiff, over and above a lease base year. No tax bill from any taxing authority or any other document proving the taxes actually imposed on plaintiff was ever produced at trial. In determining the amount owed for real estate escalations, the court improperly relied on Mr. Sharma's testimony and the bill of particulars. As indicated, this proof did not provide a sufficient evidentiary basis for the monetary awards made.

(Internal quotations and citations omitted).

A key element in commercial litigation is proving damages. As this decision shows, damages, like liability, must be proved through admissible evidence. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding proving damages.