HORN v. MUNICIPAL INFORMATION SERVICES, INC.

Thursday, February 14, 2002

Supreme Court

Westchester County

Justice Rudolph

HORN v. MUNICIPAL INFORMATION SERVICES, INC. Upon the foregoing papers, it is ORDERED that this motion by plaintiff for an order excluding from trial of this action, any evidence of alleged dimunition in value of defendants corporation stock, is decided as follows:

Plaintiff, John Horn (Horn) brings an action against defendant Municipal Information Services, Inc. (MIS) asserting, inter alia, that the agreement, between Horn and MIS is void and unenforceable, and that plaintiff is entitled to a judgment of replevin of 680 shares of MIS stock or alternatively $525,000 together with interest and damages. Defendant has asserted a counterclaim against Horn alleging, inter alia, that Horn breached a consulting agreement with MIS, and as a result of this breach, MIS has suffered a dimunition in the value of stock, and alleges damages in excess of $400,000.

Plaintiff now brings this Notice of Motion in Limine to exclude from trial any evidence of the alleged diminution in value of defendant’s corporation stock. Plaintiff asserts that damages caused by a dimunition in value of stock is a claim that belongs to shareholders and not to corporations. Rather, the proper measure of damages for MIS, if any, should be lost profits as the natural and probable consequence of the breach. Thus, any evidence offered by defendant to show the diminution in value of MIS stock is irrelevant and should be excluded from trial.

In opposition, MIS asserts that it is entirely appropriate for a corporation to seek damages for dimunition in value. As such, they are entitled to present evidence of the depressed stock MIS stock as a consequence of the alleged breach of contract. MIS contends it is a question of fact as to whether the dimunition in value of MIS’s stock is a natural and probable consequence of flowing from alleged breach. Accordingly, MIS should be permitted to present their evidence and allow the Court to weigh such evidence and assess the damages due MIS.

On the issue of whether a corporation can sue for dimunition in value; “The general rule, applicable in New York and elsewhere, that where an injury is suffered by a corporation and the shareholders suffer solely through depreciation in the value of their stock, only the corporation itself, its receiver, if one has been appointed, or a stockholder suing derivatively in the name of the corporation may maintain an action against the wrongdoer.” Vincel v. White Motor Corporation, 521 F.2d 1113, 1118 (1975). Thus, MIS, as a corporation, is eligible to maintain an action against Horn for diminution in value of corporate stock.

On the issue of dimunition in value of MIS stock as a measure of damages; “[i]t well established that in actions for breach of contract, the non-breaching party may recover general damages which are the natural and probable consequence of the breach” and “such unusual or extraordinary damages [as] have been brought within the contemplation of the parties as the probable result of a breach at the time of or prior to contracting.” Sabbeth Industries Ltd., v. Pennsylvania Lumbermens Mutual Insurance Company, 238 A.D.2d 767, 656 N.Y.S.2d 475 (1997), see also, Kenford Co. v. County of Erie, 73 NY2d 312, 319, quoting Chapman v. Fargo, 223 NY 32, 36. Further, “[t]o determine those damages which are reasonably contemplated by the parties, the nature, purpose and particular circumstances of the contract known by the parties should be considered … as well as what liability the defendant fairly may be supposed to have assumed consciously, or to have warranted the plaintiff reasonably to suppose that it assumed, when the contract was made.” Id. at 765.

Here, it is for the MIS to prove, at a non-jury trial, that the depressed stock is the natural and probable cause of the alleged breach of contract, and, furthermore, that the diminution in value of MIS stock was a probable result that was reasonably foreseeable and within the contemplation of the parties at the time they entered into the agreement. As such, defendant is permitted to present evidence on the dimunition of value of MIS stock. Plaintiff’s Motion in Limine is denied.

The foregoing constitutes the Decision and Order of the Court.