## Facts

- General Dynamics owned a 240-acre tract of land in San Diego, California.
- Vestar, a prospective developer, negotiated to purchase a 50-acre portion for a planned shopping center.
- Vestar sent a signed Letter of Understanding (LOU) stating it set out proposed terms that would serve as the basis for a later formal purchase and sale agreement.
- The LOU included an exclusivity provision requiring General Dynamics to negotiate only with Vestar for 90 days, later extended by a signed written extension.
- After the extension, General Dynamics informed Vestar it would sell the entire tract to a third party rather than proceed with negotiations for the 50-acre parcel.
- Vestar sued for breach of the agreement to negotiate, seeking only expectation damages of $48 million in projected lost profits from the unbuilt shopping center and expressly declining reliance damages.

## Issues

1. Whether, under California law, a plaintiff may recover lost-profit expectation damages for breach of an agreement to negotiate a real property sale when no final purchase and sale agreement was reached.
2. Whether projected profits from a development that never occurred satisfy California’s requirement that lost profits be proven with reasonable certainty.

## Decision

- The Ninth Circuit affirmed summary judgment for General Dynamics.
- The court treated the claim as one for breach of an agreement to negotiate, not breach of a completed purchase-and-sale contract.
- Because no sale agreement was ever reached, essential terms needed to compute profits were unknown, making Vestar’s lost-profit damages incapable of proof with reasonable certainty.
- Since Vestar sought only speculative expectation damages and disclaimed reliance damages, it could not establish recoverable damages as a matter of law.

## Legal Principles

- Under California law, lost-profit damages must be proven with reasonable certainty and cannot rest on conjecture.
- When negotiations never culminate in a final contract, missing essential terms may render expectation damages too speculative to recover.
- A plaintiff who limits its remedy to expectation damages bears the burden of proving those damages with reasonable certainty; failure to do so warrants judgment as a matter of law.

## Conclusion

The court held that, absent a finalized purchase-and-sale agreement, projected development profits were too uncertain to meet California’s reasonable-certainty standard, and Vestar’s decision to seek only lost profits required affirmance of summary judgment for General Dynamics.


Vestar Dev. II, L.L.C. v. Gen. Dynamics Corp., 249 F.3d 958 (9th Cir. 2001)