In Deephaven Distressed Opportunities Tradings, Ltd. v. 3V
Capital Master Fund Ltd., Index No. 600610/08 (Sup. Ct., NY County,
Jun. 26, 2012), Judge Melvin L. Schweitzer denied the
plaintiffs' motion for summary judgment on its damages claims.
The case arose from a dispute over the trade of distressed claims
in the Sea Container, Inc. bankruptcy. Deephaven and 3V Capital
executed trade confirmations that would convey "allowed"
claims to 3V Capital subject to a negotiated assignment agreement.
The parties signed confirmations on three trades, two of which led
to this dispute. In February 2008, Deephaven commenced this action
for breach of contract. In October 2011, the court granted
Deephaven's motion for summary judgment against 3V Capital on
the issue of breach of contract and ordered that damages would be
clarified at a hearing with a special referee report. In April
2012, both parties agreed to cancel the damages hearing and vacate
the order of reference. 3V Capital moved to cancel the damages
hearing on the basis that it was entitled to a jury trial on the
damages. Deephaven cross-moved for an award of damages in
connection with a motion for summary judgment.
Noting that awarding summary judgment on damages would deprive
the defendants of their day in court, Judge Schweitzer held that
both the issues of damages and reasonable mitigation would be
submitted to the jury due to outstanding issues of fact. Under New
York law, the measure of damages is a question of law but the value
of damages may be a question of fact. Deephaven asked the court to
calculate the damages as the contract price (plus prejudgment
interest at the statutory rate of nine percent per year), less the
amount for which Deephaven ultimately sold the distressed claims.
Relying on New York common law, Judge Schweitzer rejected
Deephaven's suggestion, stating that under New York law,
damages are the difference between the contract price for the asset
and the fair market value of the asset at the time of breach. Judge
Schweitzer also noted that using Deephaven's method of
calculation would go farther than making the non-breaching seller
whole at the time of breach, because at the time of breach
Deephaven still retained ownership of the claims, which had some
In addition, Judge Schweitzer held that when it is difficult to
determine the value of the claims at the time of the breach,
determining the value of such assets through the use of expert
testimony is favored over awarding the plaintiff the purchase
price. He found that, in the present case, disputes existed over
whether the value of the claims at the time of breach could be
determined and whether there was a market for the claims. Hence, he
held that the calculation of the damages would be decided by the
Deephaven also suggested that UCC 2-709(1)(b) could provide an
alternative measure of damages, arguing that since the buyer failed
to pay the contract price, the seller can recover the price of
goods identified in the contract. Again, Judge Schweitzer held that
whether Deephaven tried to resell the claims at a reasonable price,
which is required in order to apply the measure of damages afforded
by UCC 2-709(1)(b), was a matter for the jury to resolve.
Finally, Judge Schweitzer held that a jury trial would be
required to determine whether Deephaven reasonably attempted to
mitigate any damages from the breach of contract. It was not enough
that Deephaven established that it had asked a broker to try to
resell the claims and eventually resold the shares for $0.11/share
more than the price for acquisition. Judge Schweitzer held that in
order to prove that a non-breaching party took reasonable steps to
mitigate a breach of contract, he would have to establish more than
just that he found an alternative buyer. He pointed out that
reasonable steps included negotiating with reasonable prices at
appropriate times. Since Deephaven had only established that it had
found an alternative buyer for the shares, whether Deephaven had
taken reasonable steps to mitigate had to be evaluated by the
Thus, even when case is appropriate for summary judgment on
liability and the measure of damages, in order to avoid a trial,
litigants must still be prepared to establish that there are no
material issues of fact regarding the value of any such damages or
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In a recent decision characterizing precedent as a seven decade "aberration," the Supreme Court of California permitted plaintiff loan borrowers to introduce against a defendant banking institution parol evidence directly contradicting the very terms of the parties’ written loan agreement.