City Damaged By Breach of Contract Even Though Mitigation Costs Paid by Federal Government

On June 7, 2018, the First Department issued a decision in City of New York v. Eastern Shipbuilding Group, Inc., 2018 NY Slip Op. 04113, holding that the plaintiff had alleged the damages element of its breach of contract claim even though a non-party had paid the cost of mitigating the damage, explaining:

In support of dismissing the breach of contract claim, defendant established prima facie that the defects in the fireboats it designed and constructed for plaintiff (the City) did not cause the City to sustain any damages. It submitted testimony by the fire department's director of grants admitting that the City paid 100% of the fireboat repair costs using federal grant money. In opposition, the City demonstrated that its use of the federal grant money for the fireboat repairs does not place it in the same position as it would have been in if the contract had not been breached. It submitted evidence that, while a small portion of the federal grant money was approved and earmarked for the fireboat repairs, the City was forced to reallocate funds for other projects covered by the grant when the cost of the fireboat repairs exceeded the amount requested. Moreover, the City established that, if it recovers any money from defendant, it will be required either to repay the federal grant money or make a request to keep the money for other necessary projects.

(Internal quotations and citations omitted).

A key element in commercial litigation is proving damages. Most cases hold that this is true even for a claim of breach of contract. As this decision shows, the question of whether a plaintiff was damaged is not always straightforward. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding proving damages.