Kenford Co., Inc. v. County of Erie

• Decision Date: 21 February 1989
• Citation: 537 N.E.2d 176,540 N.Y.S.2d 1,73 N.Y.2d 312
• Parties: , 537 N.E.2d 176 KENFORD COMPANY, INC., Respondent, v. COUNTY OF ERIE et al., Appellants.
• Court: New York Court of Appeals Court of Appeals

Page 1

540 N.Y.S.2d 1

73 N.Y.2d 312, 537 N.E.2d 176

KENFORD COMPANY, INC., Respondent, v. COUNTY OF ERIE et al., Appellants.

Court of Appeals of New York.

Feb. 21, 1989.

John H. Stenger, Joseph M. Finnerty and Mitchell J. Banas, Jr., Buffalo, for appellants.

Victor T. Fuzak and Allen H. Beroza, Buffalo, for respondent.

OPINION OF THE COURT

MOLLEN, Judge. ^*

This appeal arises out of breach of contract litigation spanning 18 years and involving the proposed construction and operation of a domed stadium facility in the County of Erie. The issue is whether the plaintiff Kenford Company, Inc. (Kenford) is entitled to recover damages against the defendant County of Erie (County) for the loss of anticipated appreciation in the value of the land which Kenford owned in the periphery of the proposed stadium site. Under the circumstances of this case, we conclude that Kenford is not entitled to recovery on this claim since there is no evidence to support a determination that the parties contemplated, prior to or a the time of the contract, assumption by the County of liability for these damages.

By way of background, the County of Erie adopted enabling legislation in May 1968 authorizing it to finance and construct a domed sports stadium in the vicinity of the City of Buffalo. The County, simultaneously, adopted a resolution authorizing a $50 million bond resolution for the purpose of financing the construction of the proposed stadium. In December 1968, Kenford, through its president and sole shareholder, Edward H. Cottrell, submitted an offer to the County with regard to the stadium project. By its terms, Kenford, which had acquired options on various parcels of land located in the Town of Lancaster in Erie County, proposed to sell a portion of that land to the County as a site for the stadium facility. Although the County initially expressed interest in Kenford's proposal, it eventually declined the offer. Kenford, however, pursued the matter and thereafter engaged the services of Judge Roy Hofheinz, who had been instrumental in the development of the Houston Astrodome. Kenford then approached the County with a new offer. By its terms, Kenford was to donate to the County the land upon which the stadium was to be built, in exchange for which the County was to permit Hofheinz and Cottrell, who had formed the management company of Dome Stadium, Inc. (DSI), to lease or manage the proposed stadium facility.

In June 1969, the County adopted a resolution accepting Kenford's new offer, after which the parties engaged in contract negotiations. During this period of time, Cottrell, as agent for Kenford, exercised his options on several parcels of land located in the Town of Lancaster. On August 8, 1969, the County, Kenford and DSI executed a contract which provided, in pertinent part, that Kenford would donate 178 acres of land located in the Town of Lancaster to the County for use in construction of the stadium and necessary access roadways. In consideration therefor, the County agreed to commence construction of the stadium within 12 months. The County also agreed to negotiate a 40-year lease with DSI for the operation of the facility which was to provide, inter alia, that the County would receive, as its consideration, lease revenues of not less than $63.75 million over the 40-year term to be comprised of (1) all tax revenues received by the County generated by the operation of the stadium site area; (2) rental payments from DSI; and (3) increased real property taxes resulting from increased assessments and other tax revenues received from or generated by "the peripheral lands and development thereof". The term "peripheral lands" was defined as "those lands presently owned, contracted for or hereinafter acquired by Edward H. Cottrell or Kenford, and located within the area of the Town of Lancaster". If a mutually satisfactory lease could not be agreed upon within three months of the contract signing, the County and DSI were to execute a 20-year management agreement which was annexed to the contract. ¹

Following execution of the contract, the County solicited construction bids for the proposed stadium. The bids received by the County indicated that the proposed project would cost approximately $72 million which was $22 million in excess of the County's prior bond resolution. Although efforts were made to seek an increase in the appropriation for the stadium, those efforts were unsuccessful and, in January 1971, the County adopted a resolution terminating the contract with Kenford and DSI. Kenford's subsequent attempts to procure alternate financing for the proposed stadium facility proved futile.

In June 1971, Kenford and DSI instituted the instant breach of contract action and sought specific performance thereof, or, in the alternative, damages in the amount of $90 million. ² Following the award of summary judgment in favor of the plaintiffs on the issue of liability (see, Kenford Co. v. County of Erie, 88 A.D.2d 758, 451 N.Y.S.2d 1021 lv. dismissed 58 N.Y.2d 689), the matter was set down for a trial on the issue of damages. The damage trial lasted approximately nine months and resulted in a jury award to Kenford in the sum of $18 million for its lost appreciation in the value on its property located on the periphery of the proposed stadium site and an award of over $6 million in out-of-pocket expenses. DSI was awarded $25.6 million in lost profits under the parties' 20-year management contract.

On appeal, the Appellate Division, while affirming the major portion of the $6 million jury award for Kenford's mitigation and reliance damages, reversed the award to DSI for loss of profits as well as a portion of the award to Kenford for out-of-pocket expenses and directed a new trial on the damage award for loss of anticipated appreciation in the value of Kenford's peripheral lands (108 A.D.2d 132, 489 N.Y.S.2d 939). On this latter point, the majority of the Appellate Division determined that Kenford's loss of land appreciation was both a foreseeable and certain damage for which it was entitled to recover. The majority, however, found that the award was based upon improper appraisal evidence provided by the Kenford's expert who assumed that the property in question would be improved with, among other things, a theme park, office buildings and a golf course. The court ruled that the proper measure of damage was the value of the land as raw acreage following the construction of the proposed stadium less the value of the land when purchased (108 A.D.2d 132, 139, 489 N.Y.S.2d 939, supra ). Two Justices dissented on the issue of Kenford's right to recover damages for anticipated land appreciation and took the position that these damages were not foreseeable and, in any event, were inherently speculative and, therefore, not recoverable.

DSI subsequently sought review of the Appellate Division's dismissal of its breach of contract claim against the County. This court, addressing itself solely to the denial of DSI's right to recover its loss of profits under the 20-year management contract, affirmed that portion of the Appellate Division's decision. Therein, we determined that those damages were not recoverable on the twofold basis that the County's liability for DSI's loss of profits was not in the contemplation of the parties at the time of the execution of the contract and, secondly, the damages were too speculative and, thus, did not satisfy the legal requirements of proof with reasonable certainty (67 N.Y.2d 257, 502 N.Y.S.2d 131, 493 N.E.2d 234).

Thereafter, in accordance with the prior Appellate Division decision, the retrial on the issue of damages for Kenford's loss of anticipated land appreciation ensued and the jury awarded Kenford the sum of $6.5 million. The Appellate Division affirmed the jury award, although two Justices concurred with the result solely on the basis that that court's prior decision regarding the recoverability of these damages constituted law of the case (138 A.D.2d 946, 526 N.Y.S.2d 282). The County has appealed the Appellate Division's affirmance of the jury award in favor of Kenford. The appeal from the Appellate Division's 1988 order brings up for review so much of that court's prior nonfinal 1985 order as determined that Kenford was entitled to recover damages for lost anticipated appreciation in the value of its peripheral lands, since the 1985 order necessarily affected the consequent final determination (see, Cohen and Karger, Powers of the New York Court of Appeals § 79, at 345 [rev. ed.] ). ³

It is well established that in actions for breach of contract, the nonbreaching party may recover general damages which are the natural and probable consequence of the breach. "[I]n order to impose on the defaulting party a further liability than for damages [which] naturally and directly [flow from the breach], i.e., in the ordinary course of things, arising from a breach of contract, such unusual or...