Opinion ID: 6929867
Heading Depth: 2
Heading Rank: 2

Heading: Benefit-of-the-Bargain Theory

Text: The benefit-of-the-bargain theory is equally unavailing. Benefit-of-the-bargain damages in a Rule 10b-5 action are not available unless they can be calculated with reasonable certainty. See Barrows v. Forest Labs., Inc., 742 F.2d 54, 59-60 (2d Cir.1984). Appellants rely primarily on Osofsky v. Zipf, 645 F.2d 107 (2d Cir.1981), for the proposition that benefit-of-the-bargain damages are readily available in a Rule 10b-5 action. Yet, in Barrows we read Osofsky as establishing the “reasonable certainty” requirement. See Barrows, 742 F.2d at 60 (“The holding of Osofsky ... turn[s] ... on the distinction between damages that are speculative and those which are certain.”); see also Levine v. Seilon, Inc., 439 F.2d 328, 334 (2d Cir.1971) (governing rule under 10b-5 is “that a defrauded buyer of securities is entitled to recover only the excess of what he paid over the value of what he got, not, as some other courts had held, the difference between the value of what he got and what it was represented he would be getting”). In this case, appellant buyers of partnership interests cannot demonstrate to a “reasonable certainty” what the benefit of their bargain was or what it should have been. They maintain that damages could be calculated by “extrapolation of the returns the Partnership would have earned from March 21, 1986 through January 7, 1990, based on evidence of the returns the Partnership actually earned during its first three months of operations, supported by evidence of returns paid by other arbitrage firms during that same period.” On its face, there is nothing “reasonably certain” about any computation from this extrapolation. The concept of recovery of damages for a benefit-of-the-bargain is founded on the agreement made, not on a proposed hypothetical agreement built on outside evidence and on speculation regarding what the parties might have done or received had the circumstances surrounding the agreement been different. See Barrows, 742 F.2d at 60. Accordingly, appellants’ “extrapolation” cannot be the basis for a Rule 10b-5 damage award founded on a benefit-of-the-bargain theory.