McKernan v. Blue Acquisition, LLC

Background

Plaintiffs Forthill Construction Corp., Martin McKernan, and Margaret McKernan objected to a report and recommendation by Magistrate Judge Lisa Margaret Smith. The report recommended awarding Plaintiffs $1,435,325.67, plus post-judgment interest, based on Defendant Blue Acquisition, LLC’s default. The report recommended awarding damages for losses arising from Plaintiffs’ default on a loan from Dime Community Bank, but not for lost profits or lost salary that Plaintiffs claimed would have resulted from the alleged violation of New York’s Uniform Commercial Code.

Objections and legal standard

The Plaintiffs objected only to the recommendation denying lost profits and lost salary, so Judge Seibel reviewed those issues independently. The court explained that a specific objection to a magistrate judge’s recommendation receives independent review, while portions without a specific objection may be adopted unless clearly erroneous or contrary to law. The court also noted that arguments or evidence that could have been presented to the magistrate judge generally are not considered for the first time in objections.

Court’s analysis

Plaintiffs argued that profits Forthill would have earned from providing services to third parties, and salary Martin McKernan would have earned as the company’s president, were consequential damages recoverable under New York Uniform Commercial Code section 9-625. The court explained that consequential damages are losses arising from business dealings with people or entities other than the party that violated the agreement or statute.

The court rejected Plaintiffs’ argument. It relied on a prior Southern District of New York decision holding that consequential damages were unavailable under section 9-625. The court also explained that Uniform Commercial Code section 1-305 generally permits damages to put an aggrieved party in as good a position as if the other party had performed, but excludes consequential or special damages unless the statute or another rule of law specifically authorizes them. Plaintiffs did not identify a specific authorization for these damages under the applicable provision.

Because the court concluded that consequential damages were unavailable, it stated that it did not need to decide whether Plaintiffs had documented the claimed amounts with reasonable certainty. The court nevertheless agreed with the magistrate judge that the claimed future profits and salary appeared speculative, given fluctuations in Forthill’s prior profits and the unpredictability of which bids the company would have won.

Disposition

Judge Seibel ordered that the report and recommendation be adopted as the decision of the Court. The Clerk was directed to enter judgment for Plaintiffs in the amount of $1,435,325.67, plus post-judgment interest under 28 U.S.C. § 1961, and then close the case. The order did not award the claimed lost profits or lost salary.