Lost Profits Damages Blog

The third issue of Dunn on Damages, edited by Robert L. Dunn, was delivered electronically to subscribers on June 10. The highlights are Bob Dunn’s article on Projecting Future Economic Damages through Business Valuation Methodology; two articles analyzing damages in patent litigation:  Mike Wagner’s Book of Wisdom—Is it Fact or Fiction? and Reasonable Royalties by the New Rules, written by Douglas Kidder and Vincent O’Brien; Bob Schubert contributes Major Decision Expected from the Delaware Supreme Court; Mike Alerding writes on new Rule 26,  Mike Ueltzen and John Barrett add Deepening Insolvency: A Primer; and Bill Moran describes Courtroom Insight.  Quite a package. . . .  For further information contact http://www.valuationproducts.com/dunn.html.

Consolidated Companies, Inc. v. Lexington Insurance Co., 616 F.3d 422 (5th Cir. 2010), was a claim on a business interruption insurance policy for lost profits caused by Hurricane Katrina.  The insurer argued that plaintiff’s income losses would have occurred in some part even if its property had not been damaged, simply because of the adverse business climate after Hurricane Katrina, and that plaintiff was required to allocate its losses.  The court rejected the argument and, affirming the award at trial,  held that plaintiff was not required to distinguish between damages arising from property damage—the loss—and damages arising from market conditions caused by Hurricane Katrina—the occurrence.  This case will have impact on resolution of the thousands of Katrina insurance claims still pending.  The decision is discussed in detail in the September supplement to Recovery of Damages for Lost Profits.

The question arises when a business is destroyed whether plaintiff can recover lost profits damages that exceed the value of the business or if the value of the business is the upper limit on recovery.  Anchor Savings Bank v. United States, 597 F.3d 1356 (Fed. Cir. 2010), has held that recovery of business value and recovery of lost profits are two separate measures of damages.  The value of an asset is not a ceiling on recovery of damages for its loss, even if the discounted present value of all future lost profits exceeds the asset value at the time of loss.  Moreover, the court can consider post-injury evidence in fixing damages. This important case, from the influential Federal Circuit, is discussed in detail in the September supplement to Recovery of Damages for Lost Profits.

Bob Dunn will speak at the AICPA National Business Valuation Conference, November 6-8, in Las Vegas. In this session Bob will focus on current hot issues in proof of economic damages, including recent case law, discounting future lost profits to present value, the relation between business valuation techniques and lost profits damages  projection, and practical tips for effective testimony.

Plaintiffs sometimes find it tempting to dispense with those expensive and incomprehensible expert witnesses and to do the job themselves.  There are two  approaches.  First, the plaintiff or an employee of a corporate plaintiff with appropriate qualifications may be able to testify to damages as an expert witness.  The witness, if held qualified, will be subject to all the rules governing testimony by outside experts.  Second, the witness may seek to testify to damages as a “lay opinion witness.” Under Federal Rule of Evidence 701, this type of witness can only testify from personal knowledge, not hearsay.   The courts do not always specify under which approach the witness is allowed (or not allowed) to testify.  Several recent cases held lay opinion testimony to damages to have been inadmissible at trial, making clear that this is a very risky strategy.  For example, US Salt v. Broken Arrow, Inc. and Von der Ruhr v. Immtech International, Inc. held it proper to exclude the testimony while James Crystal Licenses, LLC v. Infinity Radio Inc. reversed a substantial damage judgment for plaintiff based on lay opinion testimony.  These and other cases are discussed in the latest supplement to Recovery of Damages for Lost Profits, just out.

The revolution in how we do business brought on by the Internet has, inevitably, produced litigation.  These cases are just now beginning to show up in appellate court decisions. Here are just a few examples. DSPT International, Inc. v. Nahum, holds lost profits recoverable for interference with a website.  Even though it was impossible to know how much business plaintiff lost, the uncertainty was caused by the acts of the defendant the court found wrongful.  As the court put it, “Just as a business could not know how many phone calls it did not get because its phone number was wrong in the yellow pages, DSPT could not know how many shirts it did not sell because retailers did not find its website.”  Smart Marketing Group, Inc. v. Publications International, Ltd., held lost profits damages recoverable for breach of an agreement to develop marketing to deliver location-specific, brand-specific, Internet sales leads to auto dealers.  But plaintiffs’ evidence of the number of potential sales leads was found insufficient to sustain the substantial award at trial. These cases and others are analyzed in the latest supplement to Recovery of Damages for Lost Profits, just out.

Starr Foundation v. American International Group, 76 A.D.3d 25, 901 N.Y.S.2d 246 (2010), discussed in supplement §2.6 of Recovery of Damages for Fraud 3d, decided that a claim plaintiff had been induced to hold securities by misrepresentations was properly dismissed. The assumptions necessary to calculate the claimed damages from holding securities, as contrasted with buying or selling them, were impermissibly speculative.

In Continental Casualty Co. v. PricewaterhouseCoopers, L.L.P., 15 N.Y.3d 264, 907 N.Y.S.2d 139 (2010), discussed in supplement §5.3 of Recovery of Damages for Fraud 3d, plaintiffs alleged losses in connection with the purchase of a limited partnership interest in a hedge fund portfolio. The court held their claims properly dismissed for failure to present evidence of the claimed overvaluation of the underlying securities held by the hedge fund as of the date of purchase, as required by the New York out-of-pocket-loss rule.

Spreitzer v. Hawkeye State Bank, 779 N.W.2d 726 (Iowa 2009), analyzed in supplement §1.2 of Recovery of Damages for Fraud 3d, grapples with the distinction between transaction causation—equated to but-for causation—and loss causation—the likelihood that the claimed misrepresentation contributed to the loss suffered. The federal courts have also separated the two concepts in securities-law cases; many of these are collected in the text. Is but-for causation enough to prove proximate cause? Or is more required? State courts only infrequently analyze this basic problem. Spreitzer is a well-reasoned opinion that will repay study.

The first issue of Dunn on Damages has just been e-published  this month and, as the name suggests, Bob Dunn is Editor-in-Chief.   Dunn on Damages is a cutting-edge economic damages quarterly journal providing in-depth analysis, practical advice, and commentary on damages subjects of importance to litigators and experts.  The journal is published by Valuation Products and Services.  Additional information is available at  http://www.valuationproducts.com/dunn.html.