Real Estate Developer’s Detrimental Reliance Entitles Him to $6.5 million

A trial judge in Suffolk County, New York has awarded a real estate developer roughly $6.5 million in damages based on the developer’s “detrimental reliance.”

The plaintiff Ron Parr, a local real estate developer, had entered into business dealings with another developer, defendant Pitcairn Properties, Inc. The parties’ stated intention was to develop and manage real property in Suffolk County, Long Island. In connection with a real estate transaction to obtain undeveloped lots in Ronkonkoma, defendant promised to “issue shares of voting common stock [of a single purpose entity that was to hold title to the properties] to [plaintiff] Ron Parr or his designee for 50 percent of the agreed upon residual value. . . of the property at closing . . ., less the amount paid for the property together with all related costs.” When a 50% interest was not transferred to plaintiff, he sued. Plaintiff asserted that “he relied, in good faith, upon all of the representations made to him, most especially that he was entitled to a fifty percent share in the properties.”

The court primarily justified its decision to award damages to plaintiff based on plaintiff’s detrimental reliance on defendant’s promise to transfer the half interest in the properties.* Yet, the court based its damages award on the full expectation measure — that is, the court awarded plaintiff the value of the performance he was entitled to under the contract, roughly $6.5 million. Perhaps reliance and expectation were one in the same here, because plaintiff originally obtained the right to title to the properties as part of the settlement of a previous action, and transferred that title to the single purpose entity, presumably in reliance on the promise of receiving a half interest.

*A sentence in the opinion that baffles me: “Since a portion of the Plaintiff’s action sounds in contract, it is necessary to address only the issues of detrimental reliance and foreseeability inasmuch as the existence of an agreement is not in dispute.” Did the judge mean to say “inasmuch as the existence of a promise is not in dispute”? Because, technically, all plaintiff needs is a definite promise to seek damages for detrimental reliance, not the existence of a contract. Perhaps I am missing something here.

Parr v. Ronkonkoma Realty Venture I LLC (2/26/08, Justice Jeffrey Arlen Spinner).

[Meredith R. Miller]