Failing to Effectively Prove Lost Profits at Trial

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.

High Personal Injury Damages Despite Modest Medical Bills

Injuries can be traumatic, even if they result from relatively low impact events. In the recent case of Glasgow v. K-VA-T Food Stores, Inc., the Plaintiff was a shopper at a Food City grocery store. The Plaintiff was a diabetic who had one prosthetic leg. He used the restroom. While attempting to stand, the Plaintiff became dizzy and started to fall. He grabbed the handrail, but it pulled out of the wall and the Plaintiff fell and struck his head.

Following the fall, the Plaintiff developed uncontrollable migraines accompanied by light sensitivity. At the time of the fall, the Plaintiff was only 42 years old and had been employed in the television and video production field for 14 years, but he was unable to continue working in that field due to the use of the bright lights. He switched careers and was employed at the time of the trial. He incurred $5,310 in medical bills.

The Plaintiff sued claiming personal injuries as a result of the fall, which would not have occurred but for the faulty handrail and Food City's prior knowledge and failure to fix it. At trial, the Plaintiff presented the testimony of his treating family doctor and neurologist who both testified that the fall caused the headaches and that the headaches may continue into the future. Ultimately, the jury found in the Plaintiff's favor and awarded him $350,000. From a technical standpoint, the trial court reduced this amount to $250,000, as that was the maximum amount the Plaintiff had asked for in his complaint.

Food City appealed the amount of the jury's verdict only on the ground that it was excessive. The Plaintiff and, more importantly, the court disagreed. The appellate court noted that the determination of the amount of damages is for the jury to decide and would not be disturbed if material evidence supported the verdict amount. The court found that the testimony of the two doctors, the previously non-existent migraines, and the impact on the Plaintiff's employment could result in the award given by the jury. Thus, the reduced verdict in the amount of $250,000 for the Plaintiff's fall was affirmed. Overall, it appears that the Plaintiff and his counsel presented an effective case to the jury, which resulted in a fairly high damages amount in light of the relatively modest amount of medical bills. This case emphasizes the importance of solid trial preparation, but also highlights that juries can be unpredictable.

Proving Damages

When a client has been wronged, attorneys often hear the line, “let’s sue.” Lawsuits are important and integral to our justice system. Litigation can sometimes be the most appropriate response to a dispute between two parties. However, before filing suit, it is crucial that the client and the attorney have substantial discussions about reasonable expectations and what a victory (or a loss) in a lawsuit can mean to the client’s bottom line. Part of these discussions must involve understanding how the client proves his or her damages and what level of evidence is required. A recent Tennessee appellate case reinforces this concept.
In Borla, the Plaintiff designed and manufactured automobile exhaust systems. Borla hired the Defendant to repair and refurbish several of its pipe bending machines. The facts are more complex than this short summary needs to explore. Essentially, the Plaintiff (manufacturer), claimed that the Defendant (repairer) breached a series of contracts which caused the Plaintiff to lose $1 Million in lost revenue in 2008, which would have equated to $486,166 in lost profits.
In an effort to prove its lost profits of $486,166, the Plaintiff offered the testimony of its chief financial officer. The Defendant, however, attacked this testimony with a hired damages expert who reviewed the Plaintiff’s losses in 2008 ($3.4 Million) and attributed these losses to factors such as “general sharp economic downturn, the initially inefficient operation of the new plant, and unrelated labor issues” – none of which had anything to do with the Defendant’s actions. Further, the Defendant’s expert opined that the damages estimate was “speculative and unfounded.”
At the end of the trial, the court found in the Plaintiff’s favor, but only in the amount of $11,839.98, a substantial difference from the $486,166 the Plaintiff tried to prove. Both the trial court and the court of appeals found that the Plaintiff failed to prove its lost profits with reasonable certainty or with sufficient evidence supporting its claim. The court of appeals noted, “the trial court quite rationally observed that [the Plaintiff] would have been well served to provide documentation of the lost or cancelled sales that it alleged were the cause of its financial losses in 2008.”
In other words, the Plaintiff simply didn’t put on sufficient evidence to support its claimed damages. The reader is left to speculate as to whether substantive discussions regarding expectation of damages at the commencement of the litigation may have led to a different result or at least a different presentation of evidence at trial.

Borla Performance Industries, Inc. v. Universal Tool and Engineering, Inc. No. E2014-00192-COA-R3-CV, 2015 WL 3381293 (Tenn. Ct. App. May 26, 2015).