Texas Causes of Action & Affirmative Defenses

Texas Causes of Action & Affirmative Defenses

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Tuesday, May 1, 2012

Proving Lost Profits as a Category of Damages in a Lawsuit

     
GENERAL RULE REGARDING PROOF OF LOST PROFITS   
  
The general rules regarding adequate evidence of lost profit damages are well known:
 
Recovery for lost profits does not require that the loss be susceptible of exact calculation. However, the injured party must do more than show that they suffered some lost profits. The amount of the loss must be shown by competent evidence with reasonable certainty. What constitutes reasonably certain evidence of lost profits is a fact intensive determination. As a minimum, opinions or estimates of lost profits must be based on objective facts, figures, or data from which the amount of lost profits can be ascertained. Although supporting documentation may affect the weight of the evidence, it is not necessary to produce in court the documents supporting the opinions or estimates.
  
Holt Atherton Indus., Inc. v. Heine, 835 S.W.2d 80, 84 (Tex. 1992) (citations omitted); see also ERI Consulting Eng'rs, Inc. v. Swinnea, 318 S.W.3d 867, 876 (Tex. 2010) (citing Holt Atherton). The injured party must do more than show it suffered “some” lost profits. Helena Chem. Co. v. Wilkins, 47 S.W.3d 486, 504 (Tex. 2001). Lost profits are damages for the loss of net income to a business and, broadly speaking, reflect income from lost business activity, less expenses that would have been attributable to that activity. Bowen v. Robinson, 227 S.W.3d 86, 96 (Tex. App.--Houston [1st Dist.] 2006, pet. denied). The calculation of lost profits must be based on net profits, not gross revenues. Holt Atherton, 835 S.W.2d at 83 n.1; Texaco, Inc. v. Phan, 137 S.W.3d 763, 771 (Tex. App.--Houston 2004, no pet.).
  
SOURCE: DALLAS COURT OF APPEALS – 05-10-00777-CV – 4/27/2012
 
In this appeal, [Appellant] asserts [Plaintiff] presented no evidence from which the jury could determine lost profits with any reasonable certainty. We agree. [Plaintiff] did not present any expert testimony regarding lost profits nor did it provide a damage model to the jury or otherwise inform the jury how it should determine lost profits, and our own review of the record does not reveal any objective facts, figures, or data from which lost profits could have been determined with reasonable certainty.


[Plaintiff] disagrees its proof of lost profits is legally insufficient, noting Texas law does not require “precise calculation” of damages. Although recovery for lost profits does not require that the loss be susceptible to exact calculation, the injured party must do more than show it suffered “some” lost profits. Helena Chem. Co., 47 S.W.3d at 504 (citing Tex. Instruments, Inc. v. Teletron Energy Mgmt., Inc., 877 S.W.2d 276, 279 (Tex. 1994)). Texas law requires supporting facts, figures, or data. Holt Atherton, 835 S.W.2d at 84-85. In particular, the injured party must prove the amount of the loss by competent evidence with reasonable certainty. Helena Chem. Co., 47 S.W.3d at 504 (citing Szczepanik v. First State Trust Co., 883 S.W.2d 648, 649 (Tex. 1994); Heine, 835 S.W.2d at 84). “Reasonable certainty” is not shown when the profits claimed to be lost are largely speculative, as from an activity dependent on uncertain or changing market condition, on “chancy” business opportunities, or on promotion of untested products or entry into unknown markets or unproven enterprises. Tex. Instruments, Inc., 877 S.W.2d at 279; Atlas Copco Tools, Inc. v. Air Power Tool & Hoist, Inc., 131 S.W.3d 203, 206-07 (Tex. App.--Fort Worth 2004, pet. denied). This determination is fact-intensive but, as noted earlier, opinions on lost profit estimates must, “at a minimum,” be based on objective facts, figures, or data from which the lost profits amount may be ascertained. Helena Chem. Co., 47 S.W.3d at 504 (citing Szczepanik, 883 S.W.2d at 649; Holt Atherton, 835 S.W.2d at 84).
     
[Plaintiff] cites cases where business owners testified concerning business economic damages or the market value of property converted from the business. See, e.g., Helena Chem. Co., 47 S.W.3d at 505-06; D/FW Commercial Roofing Co. v. Mehra, 854 S.W.2d 182, 188 (Tex. App.--Dallas 1993, no writ); Allied Bank West Loop, N.A. v. C.B.D. & Assocs., Inc., 728 S.W.2d 49, 54-55 (Tex. App.--Houston [1st Dist.] 1987, writ ref'd n.r.e.); see also Wiese v. Pro Am Services, Inc., 317 S.W.3d 857, 862-63 (Tex. App.--Houston [14th Dist.] 2010, no pet.) (owner of company can testify to value of converted property and, absent controverting evidence, such testimony will sustain a verdict); Burns v. Rochon, 190 S.W.3d 263, 270-71 (Tex. App.--Houston [1st Dist.] 2006, no pet.) (owner's uncontested testimony regarding value of his converted property will sustain a verdict); Burlington N. R.R. v. General Projection Sys., No. 05-97-00425-CV, 2000 WL 1100874, at *8-10 (Tex. App.--Dallas August 8, 2000, pet. denied) (not designated for publication) (opinion on rehearing) (testimony by plaintiff's chief financial officer regarding converted property's rental value was legally and factually sufficient to support award of loss of use damages). The cases cited by [Plaintiff], however, generally involve calculations of damages based on specific facts, figures, or data regarding lost profits, often supported by expert testimony or the testimony of the owner of the business. The situation in the present case is different.       
  
O'Bannion testified that the costs or overhead between the two contracts were “very similar.” But he based his testimony on “the way that I read the contract,” and he did not enumerate costs or overhead in the two agreements or provide objective facts, figures, or data from which those costs or overhead could be determined with reasonable certainty. Furthermore, he did not testify as an expert on lost profits. O'Bannion's testimony is simply too speculative to establish lost profits with the required reasonable certainty. See Szczepanik, 883 S.W.2d at 649-50 (defendant's counterclaim for lost profits speculative when defendant's secretary and treasurer testified they expected to make a profit of $250,000 to $500,000 per year without any showing of how they determined the amount of lost profits). We also note that we have not found a case where evidence was found to be sufficient to support an award of lost profits damages based on a witness's contention that expenses between two contracts were “similar.”        
   
[Plaintiff] also argues the two contracts themselves constituted “objective evidence and data” that was “sufficient to establish net lost profits.” But we find no support for the proposition that a price reduction between two contracts, absent supporting facts, figures, or data, is sufficient evidence of lost profits. See Holt Atherton, 835 S.W.2d at 85 (“the bare assertion that contracts were lost does not demonstrate a reasonably certain objective determination of lost profits”); Allied Bank, 728 S.W.2d at 54-55 (“In order to recover lost profits, a party must show either a history of profitability or the actual existence of future contracts from which lost profits can be calculated with reasonable certainty.”). Moreover, the jury's award of $156,996.05 is $8,262.95 less than the $165,259 price differential between the two contracts, and we find no evidence in the record to account for the reduction.
  
Arguing that the reduction was within the jury's discretion, [Plaintiff] cites Mayberry v. Tex. Dept. of Agriculture, 948 S.W.2d 312, 316-17 (Tex. App.--Austin 1997, writ denied), where the jury's damage award of $1,206 was upheld because the supporting evidence showed a range of damages of between $1,028 to $1,292. As a general rule, the jury has broad discretion to award damages within the range of evidence presented at trial, so long as a rational basis exists for its calculation. Holland v. Lovelace, 352 S.W.3d 777, 792 (Tex. App.--Dallas 2011, no pet.). The jury's findings will not be disregarded merely because its reasoning in arriving at its figures may be unclear, and the fact that there is nothing in the record to show how the jury arrived at a specific amount is not necessarily fatal to the verdict. Id. Instead, when the evidence supports a range of awards, an award of damages within that range may be an appropriate exercise of the jury's discretion. Id. But in this case, as discussed earlier, the evidence does not show [Plaintiff] offered the jury a range of lost profits damages, calculated with reasonable certainty, from which it could have exercised its discretion.
  
After reviewing the evidence in the light most favorable to the jury's verdict, we therefore conclude [Plaintiff] failed to provide legally sufficient evidence from which lost profits could be determined with reasonable certainty. “Lost profits must be non-speculative and corroborated.” Rusty's Weigh Scales, 314 S.W.3d at 111. Because there was no reliable, non-speculative evidence on lost profits, we conclude the jury's finding that [Plaintiff] sustained lost profits damages of $156,996.05 is not supported by legally sufficient evidence. We decide in favor of EMSI on the portion of its first issue challenging the legal sufficiency of the evidence as to lost profits damages.

SOURCE: DALLAS COURT OF APPEALS – 05-10-00777-CV – 4/27/2012