A New York court recently confirmed a referee’s report which recommended that a plaintiff be awarded approximately $4 million in out-of-pocket losses from the rock star Prince and another defendant (the “Prince Defendants”). The confirmation of the referee’s report came after the court granted the motion for a default judgment of plaintiff, Revelations Perfume and Cosmetics, against the Prince Defendants on the causes of action for fraudulent inducement, fraud, and tortious interference. The referee refused to award plaintiff lost profit damages and punitive damages.
Plaintiff’s Out-of-Pocket Expenses
The action arose out of plaintiff’s reliance on the Prince Defendants’ promises and representations in its decision to develop and market a fragrance. Because of the Prince Defendants’ fraudulent inducement, fraud, and tortious interference, plaintiff incurred financial losses.
Specifically, the Prince Defendants agreed to promote the fragrance in question. The celebrity’s active involvement in the fragrance’s promotion was essential to the success of the fragrance. Prince, however, subsequently informed the plaintiff that he would not be giving interviews at the fragrance’s launch party, nor would he provide a single photograph for the press release. This was not an end to the episode, however. Even after Prince notified the plaintiff of his refusal to cooperate with the marketing campaign for the fragrance, he continued to send mixed signals about his intentions regarding promoting the fragrance. For example, he later asserted that he would appear on the Oprah Winfrey Show in order to promote the fragrance. Prince never made this appearance. Prince also subsequently promised to promote the fragrance during his concert tour and promised to distribute samples of the product. Prince subsequently cancelled the concert tour. The other Prince Defendant assured plaintiff on several occasions that it would get Prince to go along with the marketing campaign, and it never told plaintiff that Prince would never approve of using his image on the fragrance or that he would not make any personal appearances.
Because of the defendants’ continued promises regarding Prince’s cooperation, plaintiff never gave up on Prince. Instead, it continued to develop the fragrance and spent millions on it.
The Prince Defendants contended that plaintiff’s out-of-pocket costs could have been avoided and that this bars their recovery. The defendants claim that Prince’s tortious conduct was apparent much earlier than plaintiff claims and at that earlier point in time, plaintiff should have stopped pouring millions of dollars down the drain, so to speak. This doctrine of “avoidable consequences” provides that “a tort defendant is not liable for consequences preventable by action that reason requires the plaintiff to take.” (Federal Ins. Co v. Sabine Towing & Transp. Co., 783 F.2d 347, 350 (2d Cir. 1986). The burden of proving that a plaintiff unreasonably failed to minimize its claimed damages rests with the wrongdoer. (Id.). The question is whether plaintiff’s conduct “was reasonable under the circumstances”. Under this doctrine, the plaintiff can still recover its damages even if there was another reasonable course of action that may have avoided some of the plaintiff’s damages. (Id. at 350-351).
Contrary to the Prince Defendants’ contention, they did not make one single misrepresentation that could be traced back to one specific date. Instead, their tortious actions were continuous in nature. The court recognized that they continued to give “mixed signals” to the plaintiff regarding Prince’s cooperation in the marketing campaign, and one of the defendants assured plaintiff on several occasions that they would work on getting approval from Prince. The referee credited plaintiff’s testimony when it claimed that it tried to make as much profit as possible to recover the costs of the fragrance while simultaneously urging Prince to cooperate as promised. Thus, the Prince Defendants claim of avoidable consequences is not relevant.
Plaintiff’s Claim for Lost Profit Damages
The referee gave short shrift to plaintiff’s claim for lost profit damages because it did not find the testimony of its expert witness to be credible on this issue. His testimony was based on the documents and the assumptions produced by plaintiff, and there was no independent research or investigation corroborating the accuracy or the reasonableness of this information.
The referee rejected plaintiff’s argument that the actual sales performance of the fragrance for a few months shores up its expert witness’s testimony. The court reasoned that such a short time period of sales for a new product is not reliable evidence of what future sales would be. Moreover, these sale projections could not be used to recover lost profits for two other, unreleased fragrances. The referee concluded that the plaintiff’s lost profit damages were speculative and denied them.
Plaintiff’s Claim for Punitive Damages
The referee also denied plaintiff’s claim for punitive damages because there was no evidence showing that the Prince Defendants acted with malicious intent.