The Comprehensive Guide to Lost Profits and Other Commercial Damages Reviewed by Momizat on . Advise for Budding and Experienced Experts The third edition of The Comprehensive Guide to Lost Profits and Other Commercial Damages is marked departure from th Advise for Budding and Experienced Experts The third edition of The Comprehensive Guide to Lost Profits and Other Commercial Damages is marked departure from th Rating: 0
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The Comprehensive Guide to Lost Profits and Other Commercial Damages

Advise for Budding and Experienced Experts

The third edition of The Comprehensive Guide to Lost Profits and Other Commercial Damages is marked departure from the prior editions. This two-volume set is replete with valuable information and insight from experienced practitioners.

economic-damagesAnyone can file a lawsuit and claim damages.  A claim is just that, a claim.  Proving damages, serving as an expert, and presenting a sensible and clear basis of the dollar amount is a far more challenging endeavor.  The Comprehensive Guide to Lost Profits and Other Commercial Damages provides readers a robust discussion of what a person needs to consider in order to become an expert and how to go about developing the damages calculation.

[su_pullquote align=”right”]Resources:

Adding Economic Damages (Individual) to Your Practice

Calculating Business Damages

Trademark and Copyright Damages

Special Considerations for Lost Profits Calculations

Commercial Damages and Lost Profits


Jonathan Dunitz and Nancy Fannon have effectively divided the book into three parts.  The first part entails what a person needs to know and consider in order to become an expert.  The second part of the book examines how calculations are developed.  In the third part, the authors provide examples of situations that may develop in various industries.  These latter examples provide more detail and underscore the level of analysis the editors and contributors undertake in litigation.

The book begins with Professional Standards for Experts.  The initial focus here is on CPAs and Statement on Standards for Consulting Services, No. 1 (SSCS No. 1) and the AICPA Code of Professional Conduct.  The chapter also addresses economists and other financial experts that are not CPAs.  Chapter 2 covers The Process: A Brief Introduction to the U.S. Court System from Filing to Appeal.  Here, the discussion turns to what happens when an action is filed, what is a scheduling order, a request for production, interrogatories, requests for admissions, depositions, the claim of privilege, and the federal rules of civil procedure.  The later part of this chapter then focuses on the rules of evidence, expert testimony, and hearsay.  This is a solid chapter for the uninitiated since it provides an overview of the process and issues experts and lawyers will address pre-trial and at trial.

Chapter 3 is Spoliation of Evidence.  What is spoliation?  It is the wrongful and prejudicial destruction or alteration of evidence by a party who had a duty to preserve it.  The authors of this chapter are David B. Chaffin and Rachael J. Eisenhaure.  The two explain how this relates to experts.  They answer: What communication from an expert is discoverable?  Are drafts discoverable?  Communication between a party’s attorney and expert witness?  These are all excellent questions and important to know; not all attorneys explain or answer these questions and knowing this provides the expert with a proverbial leg up.  In fact, some attorneys may not be up to date on the 2010 amendments to Rule 26 and the case law.

The proliferation of technology has led to increase use of electronically stored information (ESI).  In Chapter 4, A Guide to Electronic Discovery and Evidence, Daniel K. Gelb and Richard M. Gelb, two attorneys, provide an overview of questions that arise with the use of ESI, such as: 1) What is ESI and where does it reside?  2) Under what circumstances must ESI be preserved and what protocol should be followed for doing so?  3) How should the parties produce ESI?  4) How should he parties manage ESI during litigation?  5) What are the requirements for admission of ESI into evidence?  As noted above, this is a nascent area and the guidance provided by the contributors is most valuable to experts and attorneys.

Chapter 5 focuses on Expert Depositions: Accountants, Economists, and Appraisers.¬† There are reasons for taking and not taking a deposition and those are explained.¬† Motions to exclude the financial are also discussed.¬† Here, Daubert, Kumho, Joiner, and other state cases are discussed.¬† The author has also included an example of a damages calculation and shows how counsel may compare the different reports and prepare to cross-examine the financial expert.¬† The author shares that, ‚Äúthe significant difference in damages calculations often is not due to the methodology employed, but to the underlying facts and assumptions of the experts employing that methodology.¬† Those variables should be uncovered, compared, contrasted, and challenged.‚Ä̬† The author provides sound practical advice to readers (attorneys, CPAs, and financial experts) regarding how someone on the other side may approach the case and question the model and underlying assumptions.

Chapter 6 is Motion to Exclude Financial Expert.  Here, the basic legal predicate and factors to consider in making a motion to exclude an expert are discussed.  Chapter 7 focuses on Motions to Exclude Expert Testimony.  Here, the author discusses issues of qualifications, methodology, data, assumptions, and failure to consider inconsistent facts.

Chapters 8 through 18 marks the second part of the book; here, the authors focus on the nuts and bolts of lost profit damages claims; in Part III, Chapters 19 through 31, the authors focus on specific industries and issues. ¬†Chapter 8 is called Context of the Lost Profits Damages Claim.¬† Jonathan M. Dunitz and Tyler L. Farmer discuss how a claim for lost profits arises, the common elements of lost profits cases‚ÄĒthose being proximate cause, foreseeability, and reasonable certainty‚ÄĒthe new business rule, and mitigation.¬† In Chapter 9, Performing Credible Lost Profits Calculations‚ÄďAssumptions, Documentation, and Analyses, James O‚ÄôBrien, Robert Gray and Greg Stillman provide an example to underscore the main points. ¬†The chapters that follow build on the earlier chapters in this section. ¬†For example, Chapter 10 is titled, Establishing Evidence in Lost Profits Cases.¬† Chapter 11 follows with a discussion on The Reasonable Certainty Requirement in Lost Profits Litigation: What it Really Means.¬† Chapter 12 focuses on Calculating Damages for Early Stage Companies; the focus here is on the new business rule. ¬†Chapter 13 grapples with the question of Lost Profits Versus Lost Business Value.¬† Here, the authors, Tyler L. Farmer and Neil Beaton, discuss the interplay of these two common damage measurement concepts.¬† In Chapter 14, Michael A. Crain discusses Discounting Lost Profits in Damage Measurements.¬† This chapter, as the title shows, that ‚Äúconsiderations in discounting can vary widely, due primarily to the unique facts and circumstances of the case. ¬†Legal issues may cause differences, too, as the law in the United States has not been a single, uniform method by which to discount lost profits.‚Ä̬† In addition, the author discusses prejudgment and post-judgment interest considerations and adjustments.¬† Chapter 15 discusses Discounting Damages: Case Law.¬† Robert M. Lloyd here discusses cases where the discount rate was discussed in more detail.¬† So, is a risk-free rate appropriate? ¬†If a risk free rate is appropriate, then why rate? ¬†What about a risk-adjusted rate? ¬†Reinvestment rate? ¬†Other discount rate?¬† The readers are provided a solid overview of the subject matter, which answers the above questions.

The book also looks into the area of forensics, which is arguably a stretch given the title of the book.  In Chapter 16, Michael Kaplan and Rebekah Smith discuss Use of Forensic Evidence in a Lost Profits Case.  The authors have included a section on cases demonstrating the use of forensic evidence in connection with a restaurant and apparel manufacturer to impress the need and use.  Chapter 17 focuses on Financial Forensic Services for Internal Investigations.  In this chapter, Perter Resnick and Gregg Naviloff discuss the goal of internal investigations.  The chapter concludes with an overview of the mistakes committed in an internal investigation and common analytical techniques used in investigations, such as sampling stratified sampling, data mining, Bensford’s Law and analytical review of financial statement balances, and ratio analysis.

Chapter 18 through 31, Part III, marks the other change in focus by the authors.  In Chapter 18, John Garaffa discusses Business Interruption and Damages Claims.  Business interruption insurance is explained.  Prompt reporting, access to records, proof of loss, and the use of independent and public adjusters are discussed as part of the claims process.

Part III of the book focuses on lost profits in specific contexts.  The chapters here include:

  • Lost Profits for Physician Practices and Violation of Noncompete Agreements
  • Lost Profits Issues Unique to the Government Contracts Industry
  • Construction Claims
  • Lost Profits for Automotive Dealerships
  • Lost Profits for Eating Establishments
  • Intellectual Property Overview
  • Patent Infringement Damages: Lost Profits and Royalties
  • Successfully Using Experts in Patent Infringement Cases
  • Lost Profits in Trademark and Copyright Cases
  • Introduction to Equitable Remedies
  • Counting the Beans: Unjust Enrichment and the Defendant‚Äôs Overhead
  • Restitution Rollout: The Restatement (Third) of Restitution & Unjust Enrichment: Counter Restitution for Monetary Remedies in Equity
  • Post-Acquisition Disputes and Related Damages

The contributors to these chapters are accomplished.

The second volume to this third edition publication is focused on case law.  A total of 140 case abstracts are presented.  The abstracts set forth the facts, the position of the different experts, and how the court viewed the testimony.  Readers can find precedent of persuasive cases in different areas of the law (antitrust, bankruptcy, breach of fiduciary duty, contracts, etc.) and jurisdictions, that will inform the expert on what persuaded the judge(s).

In conclusion, this third edition marks a departure from earlier editions.  The authors are all very accomplished and each has a number of things to share with budding and/or experienced experts.  This is a resource that is not only a reference source, but also something I can share with other professionals.

Roberto Castro, Esq., MST, MBA, CVA, CPVA, CMEA, BCMHV is Technical Editor of QuickRead. Mr. Castro is a Washington State attorney with a focus on business, bankruptcy, exit and succession planning, wills, probate, trusts, and gun trusts. He is a member of WealthCounsel and NACVA. Mr. Castro is also managing member of Central Washington Appraisal, Economic & Forensics, LLC and a business broker with Murphy Business.

Mr. Castro can be contacted by calling (509) 679-3668 or by e-mail to or

The National Association of Certified Valuators and Analysts (NACVA) supports the users of business and intangible asset valuation services and financial forensic services, including damages determinations of all kinds and fraud detection and prevention, by training and certifying financial professionals in these disciplines.

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