New Valley Corp. v. United States

United States Court of Federal Claims · Contracts

ContractsDamagesDirect vs. Consequential DamagesLost Profitsdirect damagesgeneral damagesconsequential damagesspecial damages

Facts

Western Union, New Valley's principal subsidiary, had contracted with NASA in 1984 for shuttle launch services for its Westar VI-S satellite. After the Challenger disaster and a change in national launch policy, NASA disavowed the contract. Western Union later sold its Westar Division assets, including the Westar VI-S, to Hughes Communications while in financial distress. In the court's earlier opinion, it concluded that absent NASA's breach, Western Union could have assigned the launch contract as part of that sale and thereby realized the contract's market value.

Issue

Whether the damages identified in the court's earlier opinion were recoverable direct damages or instead barred consequential damages or lost profits under the contract's limitation-of-liability clause. Also, whether plaintiff's proposed damages calculation correctly measured those recoverable damages.

Rule

Direct or general damages are measured by the loss of the value of the performance promised by the breaching party. Consequential damages are secondary consequences of nonperformance that arise through an additional cause rather than from the value of the promised performance itself. When actual damages are ascertainable, damages should be measured by the actual value the nonbreaching party reasonably could have realized from the contract, not by broader collateral losses or an abstract market substitute price untethered to the actual transaction contemplated by the court.

🔒

See the holding & full analysis

Create a free KwikCourt account to unlock the rest of this brief — and practice the case.

The court's holding and reasoning
Doctrine tests, pitfalls & exam hypotheticals
10 practice questions + 4 AI-graded essays on this case

Free sample · practice this case

Test yourself

One of 10 multiple-choice questions for this case. Pick an answer to see why.

Summit Aero Systems, based in Denver, contracted with Frontier Launch Services, a fictional federal contractor in Virginia, for a transferable launch slot for a weather satellite. The contract limited liability to direct damages and excluded lost profits and consequential damages. After Frontier repudiated, Summit later negotiated to sell the satellite division to Redwood Orbit Holdings in Seattle, which had agreed it would have paid an extra $9 million if the launch slot had been assignable with the sale.

If Summit sues for the extra $9 million Redwood would have paid, the strongest argument that the amount is recoverable is that it is:

Explanation. Under the majority opinion, direct damages are measured by the loss of the value of the promised performance itself. A later sale does not automatically make the loss consequential; if the claimed amount is the value the buyer would have paid for the breached contract right itself, the sale merely marks when that value would have been realized. The opinion also rejects labeling that value as lost profits when it is synonymous with the value of the promised performance. (Derived from New Valley Corp. v. United States (n.d.).)