PROVING LOST PROFIT DAMAGES WITH A REASONABLE DEGREE OF CERTAINTY

images-1Lost profit damages are challenging damages to prove, but are an important form of consequential damages that parties seek based on the dynamics of the case. These damages must be proven with a reasonable degree of certainty. The recent Southern District of Florida opinion, Topp Paper Co., LLC v. ETI Converting Equipment, 2013 WL 5446341 (S.D.Fla. 2013), explained:

 

Under Florida law, lost profits must be proven with a reasonable degree of certainty before the loss is recoverable. Courts have construed this standard as requiring that the mind of a prudent or impartial person be satisfied that the damages are not the result of speculation or conjecture. In unproven businesses such as Topp’s [plaintiff], Florida courts have allowed damages where the plaintiff proves that (1) the defendant’s action caused the damage and (2) there is some standard [yardstick] by which the amount of damages may be adequately determined.” Id. at *7 (internal citations and quotations omitted).

 

The first step is the causation requirement, i.e., that the defendant’s conduct caused the lost profit damages that the plaintiff seeks.

 

The second step is the lost profit methodology demonstrating the plaintiff’s lost profit damages with a reasonable degree of certainty and without speculation. Oftentimes parties retain experts to prove these damages based on the yardstick or standard in which the lost profit damages are determined. However, in Topp Paper, the Southern District maintained that both steps “may be satisfied without resort to expert testimony.” Topp Paper, supra, at *8.  In this case, the plaintiff, a new business, planned to show lost profits without an expert by laying the foundation for cancelled contracts with its clients that were solely caused by the defendant’s actions. The plaintiff’s position was that but for defendant’s actions, it would have been able to satisfy the contracts with its actual clients and, because it was not able to, it lost the profit associated with those contracts.

 

On the other hand, the Southern District would not allow the plaintiff to prove its lost profit damages through income projections by comparing projected income with actual income to assess lost profits. The reason is that establishing lost profit damages through projections would be purely speculative, especially considering the plaintiff’s business was a new business without a history of profits.

 

In Topp Paper, the plaintiff could be in a position to establish lost profits because it actually had contracts with clients that had to be cancelled due to the defendant’s alleged actions. This was vital because the plaintiff could establish lost profits without the need to retain an expert. However, what if the plaintiff, as a new business, did not actually have cancelled contracts? It would not be able to prove damages through income or profit projections. In this scenario, the plaintiff would need to establish some yardstick to prove its damages with a reasonable degree of certainly. One yardstick could be the plaintiff’s past business and profit history. A plaintiff’s accountant or financial officer could assist in this methodology / calculation (although, if possible, it helps to have this supported by an expert). However, as a new business, the plaintiff did not have a business history. The other way would be to find a comparable business with a comparable business model as the yardstick to establish lost profits. This should require expert testimony and it will be important to work with the expert and cross-examine the expert to flesh out any speculative portion of the yardstick.

 

The bottom line is that lost profit damages are challenging and require a game plan that will be used to support (1) causation–that the defendant’s action caused these damages and (2) the standard or yardstick that will be utilized to support lost profit damages. A new business will likely have a different game plan than an established business unless there is documentary evidence (such as in Topp Paper) that the business had actual clients that would have been serviced but for the defendant’s actions. Also, knowing that income projections or pro forma profit and loss statements will be deemed speculative, getting an expert involved sooner than later is important to assist with establishing the yardstick or methodology that will be used to prove lost profits with a reasonable degree of certainty.

 

For more information on lost profit damages, please see http://www.floridaconstructionlegalupdates.com/the-difference-between-lost-profit-and-loss-of-use-damages/

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

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