Legal Memorandum: Punitive Damages for Breach of a Covenant

Issue: Under New York law, are punitive damages available in an action for breach of a covenant not to compete?

Area of Law: Business Organizations & Contracts, Litigation & Procedure
Keywords: Punitive damages; Breach of a non-competition covenant; Malicious breach of contract
Jurisdiction: New York
Cited Cases: 39 N.Y.2d 982; 40 N.Y.2d 354; 878 F.2d 650; 636 N.Y.S.2d 123; 662 N.E.2d 763; 353 N.E.2d 793; 223 A.D.2d 529; 87 N.Y.2d 308; 387 N.Y.S.2d 233; 634 N.E.2d 940; 10 N.Y.2d 401; 179 N.E.2d 497; 355 N.E.2d 287; 223 N.Y.S.2d 488; 612 N.Y.S.2d 339; 83 N.Y.2d 603
Cited Statutes: None
Date: 02/01/2000

While no cases were found that specifically address the availability of punitive damages in a case alleging a breach of a non-competition covenant, punitive damages cannot be had to redress a private wrong, and as a result, they are not available in a case of ordinary fraud and deceit.  Kelly v. Defoe Corp., 223 A.D.2d 529, 529, 636 N.Y.S.2d 123, 124 (2d Dep’t 1996).  Instead, the fraud must be aimed at the public generally, and it must be gross and involve high moral culpability; that is, the conduct must be willful, wanton, outrageous or immoral.  Id., 636 N.Y.S.2d at 124.  A “malicious breach of contract” is not sufficient.  Garrity v. Lyle Stuart, Inc., 40 N.Y.2d 354, 358, 353 N.E.2d 793, 796, 386 N.Y.S.2d 833, 833 (1976).  A seminal case in this area sets out the general rule and standard of bad conduct.


[W]e are persuaded that, on the basis of analogy, reason and principle, there may be a recovery of exemplary damages in fraud and deceit actions where the fraud, aimed at the public generally, is gross and involves high moral culpability.  And this court has—in […]

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