How "Reliance Damages" Can Remedy a Breach of Contract

In abreach of contractcase, the party claiming injury may seek what are known as “reliance damages.” As the New York Court of Appeals has explained, this refers to “damages based on [the injured party's] reliance interest, including expenditures made in preparation for performance or in performance, less any loss that the party in breach can prove with reasonable certainty the injured party would have suffered had the contract been performed.” In simpler terms, if you sign a contract and spend money in anticipation of the other party fulfilling their end of the bargain, and they fail to do so, you can ask the court to reimburse you.

Boxing Promoter Don King Held in Breach Over Canceled Fight

Recently a federal appeals court in New York addressed the subject of reliance damages in the context of a sports-related dispute. In 2013, two boxers fought for the World Boxing Association's cruiserweight division title in Moscow. The winner of the fight was subsequently stripped of the title and banned for six months by the WBA for using a banned performance-enhancing drug.

After the suspension ended, promoters for both fighters organized a rematch. The previously suspended boxer was represented by the well-known boxing promoter Don King. King signed a contract with the other boxer's promoter in which he promised to “cause [his fighter] to participate” in the fight. More specifically, King's fighter had to arrive in Moscow, the site of the rematch, at least seven days before the fight and he had to comply with all WBA drug testing rules.

The day of the rematch, King's boxer failed his drug test. The WBA accordingly refused to sanction the title fight and the other boxer withdrew. His promoters then sued King for breach of contract in New York federal court.

In October 2014, U.S. District Judge Shira A. Scheindlinruled in favor of the plaintiffs, holding that King's boxer's “disqualification plainly put King in breach” of his obligation to “cause” the fighter's participation in the scheduled rematch. This left the question of damages. The plaintiffs claimed they spent about $1 million preparing for the fight. They also sought a refund of $250,000 paid into an escrow account.

Judge Scheindlin awarded the plaintiffs their $1 million as reliance damages, less approximately $75,000 in non-refundable tickets they sold to spectators. She denied their claim for refund of the escrow, holding under the parties' contract the $250,000 reflected a non-refundable “signing bonus” for King. Both sides appealed.

In December 2015, the U.S. Second Circuit Court of Appeals agreed with Judge Scheindlin on the reliance damages but disagreed as to the escrow account. Contrary to her decision, the appeals court said nothing in the contract defined the $250,000 in escrow as a “signing bonus,” nor was there anything stating that money was “unrecoverable in the case of a breach of contract.” Under New York law, all of the money the plaintiffs payed out in anticipation of the fight, including the escrow, was recoverable by them as compensation for King's breach of contract.

Need Help with a Business Agreement?

When drafting any business agreement, it is important to specify the exact damages each party is entitled to in the event of a breach. That is why you should work with an experienced New York business attorney before entering into any such agreement. Contact the offices of Waldhauser & Nisar, LLP, if you need to speak with an attorney today.