We recently examined the case of Aqua-Chem, Inc. v. D&H Machine Service, Inc. regarding the importance of written terms and conditions in contracts. This same case also illustrates the need to properly prove lost profit damages at trial.
As a reminder, Aqua-Chem owned large coolers that were to be installed on U.S. Navy destroyers. Aqua-Chem hired D&H to modify the coolers to fit the ships. However, D&H damaged the coolers. Aqua-Chem spent approximately $191,000 to replace the coolers, which the trial court awarded as damages. The court, however, refused to award Aqua-Chem lost profits.
Lost profits following a breach of contract can be extensive. In this case, Aqua-Chem consumed an additional 730 labor hours rebuilding the damaged coolers. Those labor hours could have gone to other projects and other customers, thus giving Aqua-Chem additional profit. At trial, an Aqua-Chem executive testified that its profit margin on each hour of labor was $25.96. Aqua-Chem argued that it was entitled to an additional lost profit award of $18,951.
The court, however, disagreed, finding that Aqua-Chem didn't prove its lost profit damages with "reasonable certainty". The court found that Aqua-Chem's testifying witness was unable to establish how its CFO came up with the calculation. As such, Aqua-Chem didn't meet its burden of presenting evidence that "provid[ed] a satisfactory basis for estimating what [its] probable earnings and expenses would have been had the wrongdoing not occurred."
Presentation of evidence at trial is crucial. If Aqua-Chem had presented underlying testimony supporting the $25.96/labor hour profit margin, then the court may have awarded the additional $18,951 in damages. However, because the trial presentation lacked the supporting data, Aqua-Chem wasn't made whole.