USING THE YARDSTICK TEST TO PROVE LOST PROFIT DAMAGES

imagesIt’s all about proving your damages! One category of consequential damages that parties sometimes seek is lost profit damages. Lost profits, though, are one of the most difficult damages to prove. If a party is interested in pursuing lost profit damages (such as when the opposing party materially breaches their contract) it is important to understand the burden and expert testimony needed to support these damages with a reasonable degree of certainty.

 

In a prior article, I discussed a tenant supporting a lost profit claim against its landlord due to the landlord’s breach of the lease.  Recently, in Victoriana Buildings, LLC v. Ft. Lauderdale Surgical Center, LLC, 40 Fla.L.Weekly D1169b (Fla. 4th DCA 2015), the Fourth District found that a tenant did not properly support its lost profit damages even though the landlord breached the lease. The Court affirmed that the tenant’s lost profits claim was speculative and, therefore, not recoverable. In reaching this determination, the Court explained:

 

Lost profits are typically proven by one of two methods: (1) the before and after theory; or (2) the yardstick test. The yardstick test is generally used when a business has not been established long enough to compile an earnings record that would sufficiently demonstrate lost profits and compares the profits of businesses that are closely comparable to the plaintiff’s.  Here, the tenant’s expert consultant, in analyzing the viability of the tenant’s proposed facility, did not evaluate any comparable facility’s profitability as a “yardstick,” and the tenant’s expert CPA acknowledged that his report, which was based on the consultant’s report and forecast, was only as good or as bad as [the consultant's] forecast. Thus, the tenant’s proof was insufficient.

Victoriana Buildings, supra (internal quotation and citation omitted).

 

Without a true proven history of profitability, the tenant should have used the yardstick test supported by sufficient expert testimony.  Under this yardstick test, the expert would analyze closely comparable businesses to render an opinion as to the lost profits caused by the defendant’s breach.  Because the tenant’s expert failed to properly perform this yardstick analysis, the tenant was denied lost profit damages since these damages became purely conjectural.

 

If you have incurred damages, it is important to consult with counsel to ensure the damages you have incurred can be sufficiently proven.  Whether those damages are lost profit damages or another category of damages, it is crucial to sufficiently prove these damages in accordance with applicable law. Otherwise, you can wind up in the position of not properly presenting your damages at trial.  In the case of a business that does not have a sufficient track record to prove lost profitability, a yardstick needs to be established to prove lost profits with a reasonable degree of certainty.

 

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.