An Arbitration Tribunal of the International Centre for Dispute Resolution recently rejected a counter-claimant’s request for $219 million for an alleged breach of contract due, in part, to inconsistencies within its damages claim.
Nomir Medical Technologies, Inc. (“Nomir”) contracted with Selex Galileo, Inc. (“Selex”) in 2014 to have Selex develop and conduct human testing of Nomir’s proprietary laser device. The laser device was intended for use by healthcare providers on patients to combat Methicillin-resistant Staphylococcus aureus (MRSA) and other superbug infections – obviously, a huge target market. Nomir alleged that Selex failed to develop the device and claimed that the alleged breach resulted in a multi-year delay and the loss of future royalties from lost future sales of the devices. Nomir claimed that Selex acknowledged the reasonableness of its sales forecasts at the time of the agreement.
In response, Selex asserted that, assuming breach of the agreement, Nomir failed to mitigate its losses by securing an alternative partner to continue to develop the device. James Malackowski, Selex’s financial expert, testified that Nomir’s damages expert’s use of a high probability-of-success factor and a low (i.e., risk-free) discount rate to derive its $219 million lost value claim suggested that VC firms would have been clamoring for an opportunity to participate in the continued development of Nomir’s technology.
Mr. Malackowski indicated that, during the 2014 to 2017 time period, the appetite of VC firms for life sciences and medical device investments was great, and the potential for Nomir to secure VC funding to continue development was high, assuming the viability of its laser device technology. According to Mr. Malackowski, Nomir could not claim both: 1) a high probability of achieving its sales projections, and 2) an inability to secure VC funding and continue the development of the laser device.
Thus, “the plaintiff’s damages dilemma” in seeking future damages for breach of contract. On the one hand, the plaintiff must prove that its damages are “reasonably certain” and are not “speculative” or “imaginary”, which compels the use of low-risk discount rates. On the other hand, the ability to mitigate future losses by securing alternative business arrangements should be relatively straight forward assuming the probability of achieving future sales and profit projections is high.
Ultimately, the Arbitration Tribunal ruled in favor of Selex, finding that Nomir had failed to prove that its technology was “safe and effective” or commercially viable, making its damages claims too speculative. The Tribunal awarded Selex $7.4 million in damages, interest, and costs, upholding its claim that Nomir had wrongfully terminated the 2014 agreement.