On June 20, 2023, the First Department issued a decision in Cresco Labs N.Y., LLC v. Fiorello Pharms., Inc., 2023 NY Slip Op. 03305, holding that a plaintiff was not entitled to consequential damages for breach of a letter of intent, explaining:
Plaintiffs were limited to out-of-pocket damages for any breach of the parties’ letter of intent (LOI), which was merely an agreement to agree. Goodstein applies where an agreement to agree includes exclusivity and confidentiality provisions, and the defendant is accused of breaching them. In Garda, this Court held that recovery for breach of a preliminary agreement’s confidentiality provision could not be based on the theory that it would have acquired the company at issue, as the defendant was not bound to go forward with the transaction. This principle applies here.
Contrary to plaintiffs’ arguments, an award of cover damages was not foreseeable at the time of contracting. Plaintiffs maintain that the LOI’s text establishes that the parties contemplated cover damages for a breach of the exclusivity provision because (1) the exclusivity provision was not terminable at will, (2) the parties’ exclusivity obligations were mutual, and (3) the LOI provided that it was “intended to be binding. While it is undisputed that the exclusivity provision was binding for 30 days, it does not follow that the parties reasonably contemplated cover damages as the remedy for breaching it. In fact, the text of the LOI and the surrounding circumstances support a finding that the parties did not contemplate cover damages at the time of contracting. That the parties entered only a preliminary agreement with no obligation to close a transaction and no specific damage provision for breach conclusively shows that defendant did not wish to assume the risk of covering whatever replacement transaction plaintiffs might pursue.
(Internal quotations and citations omitted).