FORT LAUDERDALE BUSINESS LITIGATION: RECOVERY OF LOST PROFITS DAMAGES

A party can recover lost profit damages as direct damages or consequential damages. Lost profits, like all damages, are considered direct when they flow directly and immediately from the contractual breach. HCA Health Services of Florida, Inc. v. CyberKnife Ctr. of Treasure Coast, LLC, 204 So. 3d 469 (Fla. 4th DCA 2016). Lost profits are consequential when they arise from losses that were reasonably foreseeable by the breaching party at the time the contract was entered. Keystone Airpark Auth. v. Pipeline Contractors, Inc., 266 So. 3d 1219 (Fla. 1st DCA 2019) (defining consequential damages); Nyquist v. Randall, 819 F.2d 1014 (11th Cir. 1987) (“Lost profits are typically considered to be consequential damages”). Whether direct or consequential, Florida courts developed special rules to recover lost profits. Peter Mavrick is a Fort Lauderdale business litigation attorney. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment law, and other legal disputes in federal and state courts and in arbitration.

The first set of rules govern how to calculate lost profits. As the name suggests, the proponent of the damage award cannot merely establish the amount of gross revenues it would have received but for the defendant’s conduct because revenues do not account for expenses associated with generating the profit. CyberKnife Ctr. of Treasure Coast, LLC, 204 So. 3d 469 (“Evidence pertaining to loss of income or gross receipts, without specific evidence concerning expenses, is inadequate to prove lost profits.”). Therefore, the party claiming lost profits must prove the amount of revenues it would have generated and the total amount of expenses that would have been spent generating those revenues. Del Monte Fresh Produce Co. v. Net Results, Inc., 77 So.3d 667 (Fla. 3d DCA 2011). (The proper computation of damages “requires the non-breaching party to deduct from anticipated contract revenue the costs incurred in performing the contractual services.”). For example, the party seeking lost profits would likely have to establish an appropriate allocation of overhead and personnel expenses that would have been incurred in generating the revenue. Id.

The second set of rules pertains to the level of certainty lost profit damages must be established. As a general matter “all damages, cannot be speculative and must be proved with reasonable certainty.” Nebula Glass Intern., Inc. v. Reichhold, Inc., 454 F.3d 1203 (11th Cir. 2006). This can present challenges when pursuing lost profits because “proving lost profits invariably includes some element of prediction about how the market would have behaved but for the defendant’s tortious act or breach.” Id. Although proving lost profits can be difficult, it is by no means impossible. Id.

There are two Florida seminal cases regarding the level of certainty one must establish to prove lost profits, Twyman v. Roell, 166 So. 215 (Fla. 1936) and New Amsterdam Casualty Co. v. Utility Battery Manufacturing Co., 166 So. 856 (Fla. 1935). Each case contains a different standard. On the one hand, the New Amsterdam case held that prospective business profits are generally too speculative and dependent on changing circumstances to be recovered, but provided an exception when the plaintiff demonstrates the amount of his loss by competent proof associated with an established business. On the other hand, the Twyman case did not limit recovery to an established business. Instead, the court determined lost profits would be allowed if there is a “yardstick” to measure the prospective profits. The court importantly held that the uncertainty which defeats recovery is the cause of damage rather than the amount.

The Supreme Court of Florida eventually elected to follow Twyman and rejected New Amsterdam. W.W. Gay Mech. Contractor, Inc. v. Wharfside Two, Ltd., 545 So. 2d 1348 (Fla. 1989). A “business can recover lost prospective profits regardless of whether it is established or has any ‘track record.’” Id. The party seeking lost profits must prove (1) the defendant’s action caused the damage and (2) there is some standard by which the amount of damages may be adequately determined. Id. The proof can be established through a combination of direct and circumstantial evidence. Reichhold, Inc., 454 F.3d 1203 (“If from proximate estimates of witnesses a satisfactory conclusion can be reached, it is sufficient if there is such certainty as satisfies the mind of a prudent and impartial person” quoting W.W. Gay Mech. Contractor, Inc. v. Wharfside Two, Ltd., 545 So. 2d 1348 (Fla. 1989)). The proponent can offer expert opinion evidence to establish lost profits and those experts can make certain assumptions so long the assumptions are based in fact. Id. (finding that the expert’s projections of lost profits assumed an upward trend in revenues was permissible).

Peter Mavrick is a Fort Lauderdale business litigation lawyer, and represents clients in Miami, Boca Raton, and Palm Beach. This article does not serve as a substitute for legal advice tailored to a particular situation.