THE LETTER OF INTENT WAS AN AGREEMENT TO AGREE WHICH CONTEMPLATED ONLY OUT-OF-POCKET DAMAGES FOR A BREACH; THE JUDGE SHOULD NOT HAVE RELIED ON CREDIBILITY DETERMINATIONS TO, SUA SPONTE, AWARD SUMMARY JUDGMENT TO PLAINTIFFS (FIRST DEPT).

​The First Department, reversing Supreme Court, determined that the letter of intent (LOI) was an agreement to agree which, if breached, supported only out-of-pocket damages, not cover damages. The judge improperly relied on credibility determinations to, sua sponte, award summary judgment to plaintiffs:

… [R]ecovery 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[] w[as] not bound to go forward with the transaction” … . * * *

… [T]he 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 … .

… [T]he court improperly relied on credibility determinations to resolve material issues that should have been resolved by the jury. It is “not the function of a court deciding a summary judgment motion to make credibility determinations” … . Cresco Labs N.Y., LLC v Fiorello Pharms., Inc., 2023 NY Slip Op 03305, First Dept 6-20-23

Practice Point: Here the letter of intent was an agreement to agree which contemplated only out-of-pocket damages for a breach.

Practice Point: The judge should not have relied on credibility determinations to, sua sponte, award summary judgment to plaintiffs.