morning morning thank you your honor may please the court gregory on behalf of scott and brian traina this appeal arises from rockwell collins acquisition of international communications group after a fifteen day bench trial the district court got nearly everything right our issue on appeal is a narrow but significant one and involves one of the district courts damages calculations which was improper as a matter of law the rule in new york is that proof of damages is essential element of a claim for breach of contract and such damages must be proved to a reasonable certainty by providing a stable evidentiary foundation for a reliable calculation of damages with regard to the warranty against material adverse effects rockwell failed to meet this burden and that is because it provided no evidence of its damages either through expert testimony or by any other means rockwell as is a sophisticated party that was admittedly on notice to the likelihood of litigation in this matter for years before trial even began so its failure to put on any evidence of damages arising from this breach power demonstrates that there simply were no damages to prove the district court committed legal err by assuming without any basis in the record that rock was damages from this breach were at least equal to the three point two million dollars remaining under the damages cap and contrary to rockwell's argument the existence of a damages cap in this case does not alter the analysis in any way as this court has repeatedly affirmed a district court is required in all cases to explain the facts and methodology used to arrive at a damages award in other words under new york law damages must be proved to a reasonable degree of certainty damages or no damages cap because rockwell failed to provide any evidence of its damages the district court's damages award was invalid court found if i understood it correctly was that rockwell would have sought if i understand it correctly was fifty million upfront plus fourteen million later so the three point one eight million award reflects a five percent discount maybe approximately  york law it's very clear that a district court cannot rely on those kind of general assumptions of all this was a big purchase this is a small percentage that's simply not permissible and i would point you to the footnote for in this court's decision in henry where then judge would have had to call experts to say well if someone had been told these facts they would have paid only x but as i said even if we were persuaded that it was an error why wouldn't it be harmless error given and i think this is implied in the district court's opinion that the discount salt would have certainly been three point one eight three point two whatever the amount left in the in the in the count was me is there any basis to think that if that less than a five percent discount would have been sought on on the damages fan on the breach found rather absolutely your hon as a as an initial matter we we haven't we don't think it's important to be more likely that the problem would have been whether they would have entered into the contract at all but for you to suggest that they would have entered into this contract without being told about the overheating and dropped call problems in the misstated inventory and still paid fifty million plus fourteen seems very very difficult to persuade on we don't think so your honor the first point on that that i would offer would be that this counterfactual about what kind of discount would have been offered and then accepted there's no support for that in the case of what the case law requires and this is maryland vs allegheny it's the difference between the value of the company as warranted and as delivered and as the district court found here on page fifty one of the special appendix rockwell put forward no evidence of the value of i c g either as warranted or asked delivered wouldn't hurt the price at which they agreed to pay for it is warranted at that even if you take that to be the as warranted price they put forward no evidence of its as delivered value and then i understand that but are you saying that the as delivered price could possibly have  been more than the five percent discount absent that the court found what would be the basis for reaching that i know they have the burden you don't have to tell me that but given the nature of the breach you don't think that that would have supported a five percent discount in this in the value company not at all your honor page two thousand and sixty seven of the appendix is an internal rockwell presentation contemporaneous with the acquisition where they valued the company at one hundred four point five million dollars so there is significant evidence that they were getting this company at a significant discount there's also significant evidence that throughout this process rockwell would not allow i c g to disclose the ident their identity because they were concerned that other companies would swoop in and inquire i c g instead as to the reasonableness of what you describe it if around five percent what we know from the record is that these issues were resolved within four months of the acquisition and the radio programs were back and their development milestones so you have four months the only evidence that comes close to quantifying how long it took to address these defects nobody testified that i c g was worth less than what it was they paid for nobody testified about how many hours were spent on these problems in fact the testimony was we don't have the ability to tell you who worked on this how long it took them any of those price so the only thing they said was it took months that's all we have but the evidence is that within four months they were completely back on track so even if every single person at rockwell was doing nothing within those four months except addressing these two issues which clearly just isn't the case you still don't get to three point two million dollars and at the ultimately say the district court clearly erred  concluding that rockwell acquired the company believing was going to cost about seven point nine million to complete these projects in fact it cost substantially more that was clearly erroneous though the damages figure that they put forward your honor was for the fraud claim and then when they lost in the fraud claim they said every dollar of damages we asserted for fraud we're also going to assert that to fix these two discrete design issues on page fifteen of their brief they make clear that those that cost estimate included addressing these issues and other issues this is part of the district court's calculation in thinking about how do we were damages right i don't believe so your honor with regard to this warranty because we've only appealed the damages calculation as to the warranty against material adverse effects so on page sixty four of the special appendix the only things that the district court relied on in coming up with the three point two million dollars figure was at acton's testimony that this with these were serious problems just that's the know nothing quantifiable just these are serious problems and then the the district court subjective impression about the importance of getting these products to market so nothing quantifiable went into the district courts calculation of damages on this point your honor and there have to be has to be a reliable estimate that is based on actual evidence and cannot be based on general assumptions and as this court vacates district courts damages awards when a district court fails to adequately explain its methodology or when its calculations are not sufficiently precise and in this case the dischord had no way of really explaining its methodology because no methodology was employed there's no way for this court to look at what the found and rigorously analyze that methodology because it was just based on these subjective impressions and there's no way for this court to determine whether the calculations were sufficiently precise because there were no calculations whatsoever turning to rockwell's issues on appeal it raises three principal arguments none of which have any merit and all of which are directly refuted by the district court's own findings first rockwell argues that the district court failed to consider these omissions in denying its claim for fraud but on page sixty four of the special appendix the district court specifically found with regard to these very same omissions that rockwell failed to prove even by a preponderance of the evidence that they were made with quote the required fraudulent intent in support of this finding the district court also found on page forty five the special appendix that after fifteen days of trial the defense witnesses were simply more credible than the witnesses for rockwell it also concluded based on quote substantial documentarian evidence that i c's employees did not intend to misrepresent anything about the company and that the alleged misrepresentations were in any event consistent with accurate statements i see that i damages was benefit of the bargain had these material adverse effects been disclosed to us of the value of the company we would have paid less for the company he found those defects to be critical he said that they took great time and expense to correct it took months flexibility in estimating general damages number to some level of improvisation is permitted and three certain variables may be assumed unless undermined by the evidence judge or a call found no difficulty that we would have demanded and received at least the five percent diff discount he cited exactly the risk factors that rockwell collins considered in agreeing to pay sixty four million dollars of course when we consider them at that time we did not know about these two design defects and those risk factors were one how much is this going to cost us to complete had we know one of these defects we would conclude but that is in the record i think i think it's in judge raycroft opinion to where he talks about our position as to how much more cost but as it is substantiated number two delay delay is money i c g was spending they disclosed to us there were spending three hundred thousand dollars a month judge or a corps found that was understated it should have been five hundred thousand dollars a month so every month of the way is adding hundreds of thousands of dollars to a cost number three liquidated damages we're on a strict timeline with honeywell and to the extent we miss milestones we are exposed to liquidated damages in the end we receive the liquidated damages claim for money well for fourteen million dollars number for lost over or delayed sales and number five most importantly this was a strategic acquisition rockwell's prime motivation for acquiring these this company and these products was not for the products themselves but they were going to use these products to leap frog to a new generation of radio and estimated this is in the record in his opinion that we would be able to save twenty four to thirty six months off development time for the new generation of satellites and appeal i think the primary point i want to emphasize your honour's is it because this drives a lot of our issues is that there were two buckets of misrepresentations one they the misrepresentation as to milestones where they are and completing certain tests the judge judge rakoff analyze those thoroughly concluded there was no fraudulent intent and awarded us nothing on those but the second bucket really w is these two designed effects which one were not disclosed and two they represented just the opposite that there was a minor thermal problems and concluding there was no intent as to the first bucket judge rakoff pointed to two significant facts one was you talked about a confusion of the terminology that was being used that we were effectively talking past each other when the other side used red label we believe that was something they meant something else that confusion of terminology had nothing to do with the design defect that it was no confusion of terminology there the second thing he pointed to was there were snippets in various documents that had we pulled in the gather and studied them carefully would have revealed to us that these milestones were not bad but that analysis has nothing to do with our claim for these design defects so the very and page sixty seven where he's addressing all these misrepresentations he does say for the reasons discussed the buff i find no intent but the only reasons discussed above went to the the milestone mis representations not to the design defect misrepresentations and what do we know about those designs effects he made a number of factual findings number one i c g knew about these going back to two thousand and fourteen at least seven months before the acquisition number two there were repeatedly discussed internally at monthly meetings with a nice e g number three that received two letters from their customer honeywell one of december two thousand and fourteen when in june two thousand fifteen complaining about these things the fax number for i c g was a market leader in this field they had developed the prior generation of radio i c s to twenty and if they couldn't solve these problems who knows if we could alas lee as i mentioned they represented at a july meeting that these reminder thermal issues easily fix the distinction recognizing there are two buckets of misrepresentations and recognizing that judg effects it effects the the argument up pearson that you were arguing primarily that he didn't adequately address the possibility that there were gross negligence and that's and that's a secondary argument yes but the the initial argument is that when addressing the cap for example and considering whether or not there was fraud he did not to analyze whether there was intent with regard to these designs effects with respect to the gross negligence argument my reading of new york law is that to overcome a commercially negotiated damages cap new york law looks to something akin to fraud and intentional misrepresentations don't matter what that gross negligence is supposed to be akin to that that would justify overlooking the cap is akin to a fraud finding so it seemed to me that judge ray coffs determination on rejecting the assertion that there was cases addressing specifically caps a number of new york cases that used when it when it's talking about what this gross negligence mean when addressing a cap it talks about reckless disregard for the for the truth  been the standard yes that it's a very very high level when a party exercises contractual rights even if in breach there has to be some really high level of intentional misconduct intended i think the second level is the solo case  party fails to comply with its structural obligations and insult the first department set forth a slightly lower standard bad faith i think the third category are breaches the representations and more cheese that we provided a supplemental authority the deutsche about a case of the first that the partment and there the court found that knowing l allegations of knowing and and persistent misrepresentations of breaches and warranties was adequate at least at the constitutes a finding of no gross negligence and am i right in understanding that the contract itself provided only made only general representations and warranties as to the status of these two products and that they were it really the presentation the powerpoint and oral conversations that you're relying on to intimate fraud on the part of i c g is that right that was that yes i think there were both but it was largely driven by those meetings in july and which they gave his detail presentations of the status of the programs and failed to disclose these design to fix but and rather represented the opposite it struck me as surprising that these were important parts of the acquisition that there were no written representations and warranties that were part of the contractual arrangement between the parties could it be just out of curiosity could can you address the needs of the record speak to that in any way i think there were representations or warranties made about the expect  noted their theory of damages in this case is a benefit of the bargain and as this court has repeatedly held and as new york law makes clear benefit of the bargain damages are the difference between the value of a company as warranted and as delivered and as the district court specifically found here page fifty one of the special appendix they failed to put forward any evidence of i c g s overall value either as warranted or as delivered so their claim of benefit of the bargain damages really defeats their case because as the dish a court found it in put forward any evidence that could be used to calculate damages on that basis mr hall talked about the tractable case where they talk about flexibility with the damages i would ask this court to consider the city of new york versus new york case that is the case where the city was attempting to get reimbursed from the state for the care of certain mentally disabled individuals but they didn't actually provide evidence of the money they spent caring for these individuals instead they tried to rely on basically a formula they came up with about average costs and things of this nature and what the first department found was you can't do that you took care of these people you were the one who expended the money you knew litigation was coming you should presented evidence of what you actually spent the exact same situation applies here rockwell admits that shortly after the acquisition they were on alert that this was probably going to lead to litigation and yet they don't keep track of their expenses they brought forward no specific evidence of what was required to address these defects and so the burden obviously it's their burden of proof damages but in this case in particular they had the obligation to bring forward that evidence because they didn't bring forward that evans had they put forward a valuation of i c g we unable to obviously attack that valuation with evidence of our own had they brought forward evidence of how much money they allegedly spent to address these design defects we were unable to bring forward evidence that said well that wasn't a you know an engineering lee reasonable way to fix these  issues they could have been fixed in a much more simple fashion we have the option to do that because they didn't put forward and evidence and you raised that to the district court you said there's an adequate basis for any damages award here is that right you said we we did your honor both at trial and in a fifty c motion where we said there's there's been no evaluation evidence so there's nothing to base the damages support on there's a there's been a consistent conflation in this case about the damages from fraud and the damages from this particular warranty which is the one that we are appealing and as mr paul said he said twenty four million sometimes sometimes it's seventeen million to me seven million dollars is a pretty big difference it shows that these damages are not actually anything that was proven in the record these are internal rockwell estimates that both accounted for their much higher labor rate than ours they accounted for as the district court found in footnote six a four to five month expansion of the scope of the project that we had no say in that was all factored into this analysis it factors in the fact that very shortly after the acquisition they by their own admission fired anybody who knew anything that's what standard of precision do you think the district court to have been held to i mean we've talked about the valuation of the we've talked about the amount of time that pass we've talked and we've talked about the different labor rates and the actual amount to completion and so on was in the district court entitle to take the evidence before him specially given the his a finding that the cap applied and make a reasonable estimate of the damages suffered in light of the wrongdoing that he found i don't think cigar it cannot be based on general assumption so if the court had said look they would have asked for at least a thousand dollars off the price you're saying that that would be reversible error i think that would be reversible error it probably would not be the district court's opinion says that there's three point one million dollars le given acton's testimony regarding the seriousness of the unreported problems as he understood them at the time of the acquisition as well as the lack of a solution on the horizon supported by documentary and testimonial evidence regarding the importance of the swift completion of the program the court had no difficulty in saying that they would have demanded a discount of at least three point one eight four is our quarrel here about the the dollar amount that's what i meant when i said  would have said while they would have sort of discounted at least a thousand dollars it seems to me that that's what we're really talking about not the district court couldn't take the seriousness and the time and all of these factors into account and said look i'm not going to put on a green eye shade and decide this to the penny it's definitely over three point one eight million and i am hard pressed not to agree with that your honor there's no evidence that the damages they suffered came anywhere close to that amount and there's also to take four months to re reestablish this whole system i mean we are we do have a record that shows the time was of the essence they had deadlines with respect to another party i don't know how you can say that that didn't result in them overpaying for the company you're on of there's a very clear w established in the law to prove that you overpaid for a company and it's to bring forward a valuation of that company that's by putting forth expert testimony the district court saying i don't need expert testimony in this case and that is one of the principles of the federal rules and finder only gets expert testimony if it needs it it didn't need it your honor i think you would be hard pressed to find a case based on company valuation that didn't include expert testimony but you know the thing about company valuation you keep talking about the value of the company is warranted given a breach of contract don't we start with what they agreed to pay it having been told certain things and then what they would have paid for it and if they had been if there had not be a breach you want to know the case well you seem to think you get the benefit of the bargain that if they if they persuaded you to sell for less than your company was worth that that that absolves you of any responsibility for breach absolutely not your honor they get the benefit of the bargain but the way you assume that's why you start with their purchase price i don't know under new york law that is not accurate i don't believe your honor you don't start you don't it's not a valid assumption to assume that the purchase price was the value as warranted but even if that was the case even if that was the case you still have to bring forward the valuation of the company as delivered and they didn't do that in this case thank you very much that you don't have the arguments will take the