A Review of the Basics for Lost Profits (Part IV) This is the fourth article in a series reviewing the basics for lost profits. Important in any assignment for calculating lost profits is understanding standards set by the courts. The three standards that courts use in assessing lost profit calculations are foreseeability, proximate cause, and reasonable certainty. In this segment, these court standards for providing a lost profits analysis are reviewed. Read Part I, Part II, and Part III. This is the fourth article in a series reviewing the basics for lost profits. In this segment, the court standards for…
-
-
After the COVID-19 Pandemic The COVID-19 pandemic put a strain on the U.S. and global economies as well as individual lives throughout the world. As much as most people would like to put 2020 behind us, experts will have to continue to review financial returns from 2020 in the historical data for businesses claiming to have been injured by wrongful acts in 2021 and the future. As much as an expert would like to disregard the 2020 results, questions need to be asked as to how the injured business’ market and customers were affected by the pandemic and what level…
-
Modern New Business Rule and How it Has Been Applied by the Courts Earlier this year, the author published two articles that appeared in QuickRead discussing calculating lost profits and defense responses for lost profits calculations in cases falling under the modern new business rule. The foundation for the article on defense strategies was an article published by Victor Goldberg. Following publication, the author was contacted by Mr. Goldberg, who recommended additional reading on this topic. That has led to this article. Under the new business rule, a new or unestablished business could not recover lost profits. This rule was…
-
in Economic Damages Calculations (Part I of III) The AICPA has issued two practice aids, one on 2015 and most recently in November 2018, focused on the calculation of economic profits and damages. The purpose of this article—the first of three on this topic—is to provide the reader with an understanding of Chapter 1 (Revenue and Growth Rates) of the 2018 Practice Aid as well as certain other publications containing a body of knowledge on the best practices for developing “but for” revenues and revenue growth issues in lost profits models. Later articles will deal with Chapter 2 (Costs) and…
-
and Defense Strategies Beyond Reasonable Certainty Experts estimating lost profits under the modern new business rule know that lost profit estimates in these cases are held to a higher reasonable certainty standard than calculations for lost profits in cases with established businesses. Failing to meet this higher standard may cause an expert’s calculations to be ruled as speculative. To this level of greater scrutiny, Victor Goldberg has introduced additional defense strategies for reviewing new or unestablished businesses claims. His strategies move the focus away from assessing what revenues and profits would have been “but for” the wrongful act to non-cash…
-
The Objective and Subjective Tests Used to Determine Foreseeability To recover lost profits in a commercial damages case, three standards must be met. They are proximate cause, foreseeability, and reasonable certainty. Of these three, foreseeability is the lost profits standard in which a financial expert will have the least involvement. But this does not mean the expert’s work would not benefit the trier-of-fact in assessing foreseeability. This article will review the foreseeability standard and discuss how financial experts may be able to assist the trier-of-fact in considering this standard through their work addressing proximate cause and reasonable certainty.
-
The Role of the Forensic Accountant There are a number of instances where damage estimates are uncertain and where a customer is lost. What should one do in these instances? Losses sometimes require reasonable estimates, as well as a reasonable forecasting of the market—both for the generation of revenues and for mitigation. In the case where there is greater perceived loss than a single contract, a forecast is necessary to determine the long-term future lost net profits for the value of the lost customer. Dr. Kreuter shares his views on how to address these more complicated engagements.
-
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.
-
The Danger of Not Considering Other Potential Sources of Harm To recover lost profits in commercial damages litigation, three standards must be met: proximate cause, foreseeability, reasonable certainty. While all three are important, proximate cause does not always receive a great deal of consideration among experts. Although the question of causation is generally left to the trier-of-fact, financial experts not addressing other potential factors for declines in sales or profitability as a part of their analysis can find themselves excluding from testifying. This is because courts have found the failure to consider causation to be a flaw in the expert’s…
-
Prepare, Verify, and Excel at Trial In order to recover lost profits in a commercial damage case, three standards must be met. First, plaintiff must show proximate cause; second, the foreseeability; and third, reasonable certainty. This article will focus on the third standard, reasonable certainty. Experts seeking to provide realistic lost profit estimates must be aware of this standard. The following discussion will review literature, court decisions, and practical efforts that may assist experts in addressing reasonable certainty.
-
While the vast majority of jurisdictions have moved away from the new business rule and adopted the modern new business rule, by which new/unestablished businesses can recover damages, such adoption does not diminish the requirements under the reasonable certainty standard. Given the lack of historical financial performance data and under the lens of the reasonable certainty standard, estimates of lost profits damages to new/unestablished businesses are subject to a higher level of scrutiny. This article focuses on new/unestablished businesses and the importance of post-incident business-specific data/facts to isolate the effects of the disputed event, and to establish a measure of…