For many years, damages from lost profits claims that were attributed to newly formed businesses were simply not allowed under the pretense that new or unestablished business could not recover lost profits. Recently, however, courts have begun to apply different standards for new businesses that open the door for such recoveries. As commented by Robert Dunn in his Recovery of Damages for Lost Profits book:
“The development of the law has been to find damages for lost profits of an unestablished business recoverable when they can be adequately proved with reasonable certainty. What was once a rule of law has been converted into a rule of evidence.”
Reasonable certainty refers to the requirement that calculated damages for lost profits must be estimated using reliable methods and evidence. Although absolute precision is not required, the lost profits claim must not be so remote as to be overly speculative, which would render it unbelievable and unreliable. The plaintiff is required to establish not only the causative fact of the damages, but also the amount. The expert is charged with the task of estimating the amount of those damages in a reasonable manner using the best evidence available and with proven methodologies.
In calculating economic damages and lost profits, experts are often guilty of not using the correct method, using ex ante or ex post incorrectly, or of ignoring important considerations such as the relevant time period in which the damages are sustained. Furthermore, the injured party is usually required to mitigate its losses, which may be overlooked or ill-considered by the expert with the result that his calculations may be over or under stated.
There are many factors supporting the foundation and underlying assumptions undergirding an effective economic damages calculation. Not only is it necessary for the expert to be well-acquainted with these variables, but it is also very important that the attorney, the expert, and party agree to them early in the process of the calculating the damages.
If you have any questions or comments about this article or of other related topics, please give us a call or an email and we’ll be happy to discuss them with you.