New York Court of Appeals ruled a no consequential damages clause in a distribution agreement did not prevent a distributor from pursuing lost profits damages
In March 2014 the New York Court of Appeals ruled a no consequential damages clause in a distribution agreement did not prevent a distributor from pursuing lost profits damages. The case was Biotronik v Conor Medsystems Ireland Ltd. In 2004 Biotronik had reached an agreement with Conor to be its exclusive distributor for much of the world of a specific stent. In 2007 Conor stopped producing the stent and Biotronik sued for breach of contract.
Conor argued that the lost profits which Biotronik was seeking were really consequential damages which it contended were precluded under the contract between the parties. The trial court did indeed conclude that the damages were really consequential damages and thus Biotronik was precluded from recovering them. The First Department also agreed with the trial court on this all important issue, however, it did give Biotronik the option to appeal the ruling.
The Court of Appeals was left with the decision of whether the damages at issue were really general or consequential damages. Biotronik argued that the damages it was seeking were the direct and obvious benefits it would derived under the basic contract agreement. They were not a function of any collateral arrangements or events but would come from the gross profits of the actual sales of the product that was the focus of the distribution agreement.
The Court of Appeals rendered a close 4-3 decision wherein it reversed the lower courts and concluded that the lost profits in question were the direct result of the breach and were really general damages. The minority expressed their concern about what the ramifications of such a decision would have on business agreements and clauses such as that which was at issue in this lawsuit and which are quite commonplace and relied upon by companies.