Berley Industries, Inc. v. City of New York

• Decision Date: 30 November 1978
• Citation: Berley Industries, Inc. v. City of New York, 45 N.Y.2d 683, 412 N.Y.S.2d 589, 385 N.E.2d 281 (N.Y. 1978)
• Parties: , 385 N.E.2d 281 BERLEY INDUSTRIES, INC., Respondent, v. CITY OF NEW YORK, Appellant.
• Court: New York Court of Appeals Court of Appeals

Page 589

412 N.Y.S.2d 589

45 N.Y.2d 683, 385 N.E.2d 281

BERLEY INDUSTRIES, INC., Respondent, v. CITY OF NEW YORK, Appellant.

Court of Appeals of New York.

Nov. 30, 1978.

W. Bernard Richland, Corp. Counsel (James P. Griffin and L. Kevin Sheridan, New York City, of counsel), for appellant.

Eli Saul Cohn and Franklin E. Tretter, New York City, for respondent.

OPINION OF THE COURT

FUCHSBERG, Judge.

This action for breach of a construction contract addresses the circumstances in which a mathematically stated rule, such as the so-called "Eichleay formula", ¹ may be applied to determine the amount of home office overhead, if any, which may be included in arriving at a contractor's delay damages.

Plaintiff, Berley Industries, was the heating, ventilating, and air conditioning contractor for a combined 48th precinct police station and firehouse then being constructed by the City of New York. The contract price was in excess of $472,000. It is conceded that, for causes attributable to the city, plaintiff was unable to start on this project for many months after it received notice to proceed. As a result, some of its work was not completed until 355 days after the two years stipulated in the agreement had gone by. At the two-year mark, as measured in monetary terms, Berley had completed 87% Of its undertaking, leaving only approximately $60,000 worth left to be done. It should also be noted that this was but one of 11 construction contracts aggregating over $5,800,000 which plaintiff was engaged in performing at the same time.

Berley's suit, Inter alia, sought damages for Increased home office overhead expenses during the period of the overrun; presumably, to the extent of all but that represented by the final $60,000, it had already been compensated for its Regular overhead expenses by the very terms of its contract with the city. At trial, the sole proof it introduced to establish the increase took the form of testimony by its Comptroller. This witness, who had not been in Berley's employ at the time the contract was fulfilled and had no personal knowledge of the facts, calculated the increase in home office overhead at $19,262. He did so solely by applying an arithmetical procedure which he claimed he had developed, but which counsel later referred to as the "Eichleay formula". It consisted of no more than the use of Berley's total billings during the period as a denominator of a fraction of which the billings for the 48th Street precinct was the numerator, the multiplication of that fraction by Berley's total home office expenses for the same period, the division of the sum so produced by the number of days involved in the period and, finally, treating the result as though it were the daily additional overhead for 48th Street, multiplication of it by the 355-day overrun. ² He provided no substantiation that even a single penny's increase in overhead beyond what the rest of the plaintiff's business would in any event have required had in fact been incurred.

Over objection, Trial Term submitted the Comptroller's formula and calculations to the jury, which returned a verdict in Berley's favor. The judgment entered thereon was affirmed by a divided Appellate Division, but only on constraint of its prior decision in Mars Assoc. v. Board of Educ., 53 A.D.2d 532, 383 N.Y.S.2d 889. The ensuing analysis persuades us that its order should be reversed.

It is fundamental to the law of damages that one complaining of injury has the burden of proving the extent of the harm suffered (e. g., Haughey v. Belmont Quadrangle Drilling Corp., 284 N.Y. 136, 29 N.E.2d 649; Palsgraf v. Long Is. R. R. Co., 248 N.Y. 339, 162 N.E. 99). Delay damages, including ones in overhead, are no exception. A contractor wrongfully delayed by its employer must establish the extent to which its costs were increased by the improper acts because its recovery will be limited to damages actually sustained (Uvalde Asphalt Paving Co. v. New York, 196 App.Div. 740, 762, 188 N.Y.S. 304, 318; Encyclopedia, New York Law, Damages, § 565, pp. 20-21). Speculation or conjecture will not suffice (25 Fifth Ave. Mgt. Co. v. Ivor B. Clark, Inc., 280 App.Div. 205, 112 N.Y.S.2d 117, affd 304 N.Y. 808, 109 N.E.2d 469; Restatement, Contracts, § 331; 13 N.Y.Jur. Damages, § 16).

Particularly in actions Ex contractu, however, when it is clear that some injury has been occasioned, recovery will not necessarily be denied a plaintiff when it is apparent that the quantum of damage is unavoidably uncertain, beset by complexity or difficult to ascertain (cf. Reynolds Securities v. Underwriters Bank & Trust Co., 44 N.Y.2d 568, 406 N.Y.S.2d 743, 378 N.E.2d 106; Matter of Rothko, 43 N.Y.2d 305, 401 N.Y.S.2d 449, 372 N.E.2d 291; Bigelow v. RKO Radio Pictures, 327 U.S. 251, 66 S.Ct. 574, 90 L.Ed. 652). The law is realistic enough to bend to necessity in such cases. A jury then may draw reasonable inferences from the other, though lesser, proofs actually presented in order to arrive at an estimate of the amount of extra costs which are the natural and probable result of the delay (Jones Co. v. Burke, 306 N.Y. 172, 117 N.E.2d 237; Dunkel v. McDonald, 272 App.Div. 267, 70 N.Y.S.2d 653, affd 298 N.Y. 586, 81 N.E.2d 323). Even then, there must be a definite and logical connection between what is proved and the damages a jury is asked to find (see Dunkel v. McDonald, supra ; 13 N.Y.Jur. Damages, § 16, p. 441).

It is relevant to the application of these principles that, in the case before us now, any increase in home office overhead was not merely hard to measure, but was lacking altogether. True, unlike job site overhead increases whose relationship to a particular job will usually be capable of direct proof, the connection between home office overhead increases and delay in a particular project will more often be indirect. But because proof is indirect does not mean it does not exist. Here there was no showing that the delay caused an increase in home office activity or expense of any kind. So far as the record shows, all expenditures for office overhead may have been completed when the 87% Level was reached. Nor was there any showing that this was a case where the delay precipitated, or was precipitated by, engineering or design problems that call for central staff consideration. Above all, there was no claim by the plaintiff that proof was not available. It fell back, instead, on the formula it put forth through the Comptroller.

The mathematical formula did not fill the void. At not a single point in the question which it set up was there a component which represented an actual item of increased costs, whether attributable to the delay on the city's job or not. The computation it essayed was therefore no less speculative because it was cast in a mathematical milieu. And, insofar as it was offered as a substitute for direct evidence of overhead damage, there was no accompanying foundation from which it could be found that, because of the character of Berley's business, increased overhead attributable to delay was impossible of proof without the aid of the formula. Nor was there any attempt to prove that the formula was logically calculated to produce a fair estimate of actual damages. Absent these preconditions, it was but an unsupported opinion. It did not serve to expand Berley's ability to recover any more than the reasonable value of any additional home office expenses it might have been able to prove by other means.

In rejecting the formula we, of course, are aware of the fact that, under the Eichleay nomenclature, it has been applied in a series of home office cases, which for the most part accept the formula largely without analysis and almost as a matter of administrative convenience (e. g., Luria Bros. & Co. v. United States, 369 F.2d 701, 177 Ct.Cl. 676 (FBI audit in...